In January 1995, I bought $13.80 worth of gas at a Citgo station in Norwell, Mass.
You are probably wondering why this is important.
So was I, when I discovered the old bill in a file a few weeks ago. In fact, I found several files filled with worthless information like that, and I’m one of those rare people who actually purges the house of old paperwork with some regularity.
Our society is awash in financial paperwork, from paycheck stubs to canceled or duplicate checks, credit card statements, bills, investment paperwork, retirement plan updates, ordinary receipts and tax documentation.
Most of this is not personal finance history; it’s trash.
Yet many people keep this documentation on the premise that they “might need it someday.” At best, however, the paper is insulation for your attic; at worst it’s a fire hazard.
“Some people want to hold onto things as a security blanket, others hold onto papers because they do not know what to keep and what to get rid of,” says Elaine Bloom, who runs A Place for Everything, a Maplewood, N.J., firm that does organizational training. “Very few of the papers will ever be useful again.”
If you have unlimited space for financial records, clutter is no object. But if you want to defeat the paperwork monster, you can start by asking two questions:
1) Have I ever needed this type of information before?
In the case of the gas card bill, for example, it was never looked at once it was filed.
2) What am I keeping it for?
If you have no good answer, or if you know the data might be available in someone else’s files, such as a bank providing a copy of a canceled check, chances are good you don’t need it.
When you find papers for which you have neither need nor a reason to keep it, they belong in the garbage.
That said, there are rules for destroying financial papers. For active accounts, rip or cut papers until account numbers are unrecognizable. Keep a record of current and past bank and credit accounts, including account numbers and the dates any old accounts were closed. You may even want to save the last statement you got from a company. This protects you in the event old, outdated information resurfaces unexpectedly during a credit check.
Here are the rules governing what to keep or toss among your personal financial paperwork:
– Tax returns. If it is tied directly to your tax return, you need to keep it for at least three years, preferably six.
“But some people feel that anything with a number on it is something that the IRS might want, which makes them terrified to throw anything away,” says Barbara Hemphill, a North Carolina-based organizing consultant and author of “Taming the Paper Tiger at Home.”
You don’t need to keep tax paperwork forever. The IRS can audit you for three years from the date a return is filed, can pursue underreported income for six years and can chase false or fraudulent returns forever.
Assuming you aren’t the fraudulent type, that means supporting documents (receipts justifying expenses, letters acknowledging charitable contributions, bills supporting home-office deductions, etc.) can be shredded after three years, but probably should be kept for six.
Even after the underlying paperwork is gone, you probably want to hold onto the actual return. Old tax returns, especially those covering the sale of properties, can be important for compiling future returns.
– Paycheck stubs. Most paystubs update your year-to-date figures; as a result, each new stub makes the last one obsolete. So if you receive everything you are entitled to and have no dispute with your employer, toss the stubs. Keep the last stub of the year to crosscheck your employer’s tax reporting.
– Paid bills. Credit card statements, utility bills, department store and service-station charges and other paid bills can be tossed once the information is verified and payment is properly credited. Beyond justifying tax-deductible business expenses, these bills generally have no value so don’t feel obliged to hold them forever.
There are two exceptions to that rule:
In divorce cases, bills may be used to determine which spouse pays a child’s expenses and can claim the child as a dependent.
In addition, retain any paid bill on which there was a disputed charge, a waived late fee, fraudulent card use or any other problem. Save those bills, along with any notes on how and when problems were resolved, in case the negative information ever hits your credit report and you need to get it off.
– Bank statements/canceled checks/ATM slips. Bank statements help you figure out where your account stands. Once that mission has been accomplished, they can be tossed.
“I find people with 40 years of bank statements who have not reconciled their checkbook once,” says Hemphill. “They aren’t going to have any sudden need for a check they wrote in 1975.”
Keep checks with tax ramifications–donations, tax and mortgage payments, home improvements, etc.–and throw the rest out once the checkbook is balanced. (If you don’t balance your checkbook, pull the tax-related data and toss the rest.)
– Investment records. Any document pertaining to the purchase or the sale of a security will, in time, become tax paperwork.
But monthly brokerage or mutual fund statements and quarterly retirement plan statements can get tossed once the year-end statement, which shows all activity for the year, arrives.
– Insurance papers. This is another prickly area. Something that happened in the past could crop up and be a problem today; you may not know if it’s covered by an old insurance policy unless you keep the papers.
So call your insurance agent and ask what must be kept (and what they keep on file, since they may keep your old policy statements). Outdated auto-insurance papers, for example, most likely are trash. Most of the time, your agent will tell you to keep current papers and ditch the rest.
– Medical paperwork. If you have big medical bills and can take the tax deduction, you have to hold receipts.
But chances are, your health plan sends you many papers stamped “This is not a bill.” That’s shorthand for “This is probably trash.”
Organizational experts suggest keeping those papers that detail unique procedures or contacts with doctors beyond your primary physicians. This becomes a backup medical history.
– Home records. Keep the paperwork on any home improvements until you sell the home, when it will come in handy for tax reasons. But if you have old apartment leases or past home papers filed away, you are wasting cabinet space.
– Warranties and store receipts. When the warranty is no longer in effect, pitch the paper. Store receipts should be kept for as long as there is an honest chance you may return an item, or for as long as the product is under warranty. Clip receipts to warranties, and they can be trashed simultaneously.
– Correspondence. Letters about tax returns, credit history (closing accounts or letters straightening out disputes) should be held indefinitely. Anything else is probably trash within a year of being written.
Says Bloom: “If you haven’t needed it before and don’t see yourself having a real reason to need it in the future, throw it out. You may worry about doing it now, but you won’t miss it when it’s gone.”
