We’ve spent most of April doing a deep dive into finances. In this last post, I want to take a few minutes to talk about financial documentation — what to keep and how to organize it.
You should keep documents regarding your mortgage and any proof of debt satisfaction permanently. Store them in a safety deposit box or a fireproof box.
Keep insurance policies while they are in effect.
Keep tax returns (and any documentation to support the numbers in the return) for at least seven years.
Keep records for purchases of stocks and mutual funds until they are sold so that you can prove the cost basis for capital gains.
For ordinary bills, you don’t need to keep them for more than a year (unless they have tax implications).
Apart from things that need to be in a fireproof box, a standard filing cabinet with well-labelled files will be fine. You just need to make sure that you put things into the files as they arrive and that you prune the files regularly. In fact, the weeks after you finish your taxes are a great time to prune files. So, take a few hours this week to pull things out of the files that you no longer need to keep. Make sure you shred anything that might have identifying information.