7 Tips for Spring Cleaning Your Finances

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Is your filing cabinet groaning under the weight of old financial documents? Do you have canceled checks from 2004? It's time for spring cleaning, and we can help.

Spring cleaning is an important (and practical) tradition in many households – dumping all the junk and staying organized gives us more space and peace of mind.

But one place where people often fear to clear the clutter is in their filing cabinets, where old paperwork collects dust. A few simple questions tend to keep the paper piling higher: “What if I need these later for taxes? What if I get audited? Will I need proof I paid for this?”

If that sounds familiar – and you had trouble finding what you needed for Tax Day – maybe it’s time to face your filing fears. An accountant like Stacy certainly knows what’s worth keeping and what to toss, so listen to his advice in the video below. Then read on for more tips on cutting clutter and going paperless.

As Stacy mentioned in the video, most of us keep paper we never needed to start with. The first thing to do is evaluate your record-keeping system. It doesn’t have to be fancy and sortable by colored tabs, but it should work for your family and ultimately save more time than you spend maintaining it. Here’s some other advice…

1. Shred it before you shed it.

This is the top tip for a reason. It’s important to carefully dispose of anything with personally identifying information – pretty much anything attaching a number to your name – to prevent identity theft. For more on keeping criminals from turning your trash into their treasure, check out 7 Ways to Prevent Identity Theft.

2. Toss everything that’s obsolete.

Junk mail, old catalogs, previous editions – all trash. If you have instruction manuals for products you no longer own, throw them out. Many manuals are online anyway. If you have a more recent version of a document, toss the old version unless you’re not sure about it. (It may get thrown out after you read these other tips.)

Some more examples of stuff you don’t need:

  • ATM slips, once your account is reconciled
  • Credit card receipts, after reconciling against your statement: unless they’ll be needed as proof of purchase or for taxes
  • Canceled checks, same as above
  • Expired warranties
  • Expired insurance policies

3. Figure out what stays for the immediate, short, and long terms.

Some stuff you keep forever. Items on that list can generally be summed up as major achievements and major tangles with the government: birth and marriage certificates; divorce, adoption, and immigration paperwork; and legal documentation, including powers of attorney, wills, titles, deeds, and contracts.

Paperwork supporting income tax deductions you’ll want to keep for at least three years after you file the tax return they relate to. This lengthy list includes: receipts for home office equipment, professional dues, business-related travel and entertainment expenses; retirement account contributions, donations, medical expenses and deductible interest, mortgage and property tax payments. (More on taxes in a minute.)

You also may want to keep receipts of big purchases for insurance purposes, and the final paid-in-full bills of any service you drop – in case they try later to mess with your credit or say you owe them more.

Then there are things you need for a year or less: pay stubs, utility statements (unless they’re business deductions), credit card and mortgage statements, and anything else that provides an annual or cumulative summary.

4. Understand tax requirements.

As mentioned above, most people only need to keep tax-deduction-related documents for three years, the maximum length of time the IRS typically goes back to audit.

Keep final copies of your returns indefinitely as proof you filed, but otherwise the only reason you’d need to keep tax stuff longer than three years is if you’re cheating: Under-report your income by 25 percent or more, and the IRS can go back six years. File a fraudulent return or fail to file one and there’s no limit.

The IRS gets into specifics on how long to keep every type of tax record in Publication 552.

5. Know what’s already kept online for you and don’t duplicate.

Your bank and insurance company probably make your statements available online at no charge. If that’s the case, throw out the paper copies – you can always reprint them if need be. Opt out of receiving paper statements to keep down future clutter.

And remember that banks and government institutions have to keep records too – usually for seven years, if not longer. Even if it’s not online, you can probably get a copy (for a price) if you really need one.

6. Digitize other important records.

Some stuff isn’t automatically kept online for you, but you may need to print a copy or email it to someone. Invest in a cheap scanner – one of the cheapest with the highest user ratings is the Canon CanoScan LiDE110, currently $55 – and make sure to back up the digital versions (on CD-R, USB drive or external hard drive, or online) in case of an electronic disaster.

Another backup plan: Store your files on an online “cloud service” for free, and you can access them from any computer. You can get 5 GB storage from Amazon or iDrive and 2 GB of storage from Dropbox that you can sync to mobile devices and share with others. More space is available with paid plans, but that should be more than enough for most people’s documents. Whatever you do, just remember to name, tag, or otherwise label files well for future searches.

7. Use software to get organized.

In the video above, Stacy mentioned the Insurance Information Institute’s home inventory software. That will help you create a record of your possessions if disaster strikes. There’s also Evernote, a program that can keep track of your documents and just about everything else. It’s free, with a premium version that includes more file types and bigger files, more storage, and mobile access.

Whatever you do to get your paperwork in order, stick to it and make sure it keeps saving you time.

Stacy Johnson

It's not the usual blah, blah, blah

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