Setting up a recordkeeping system includes four steps:
- Gather and organize financial information.
- Decide where each type of record should be kept, in a home file or safe-deposit box.
- Organize the records kept in your home file and place appropriate records in a safe-deposit box.
- Review and discard unneeded records.
Step 1: Organize Financial Information
- loan related documents – promissory notes, disclosure statements, notifications of lender change, repayment schedules, lender correspondence, income tax returns
- personal papers – birth, marriage and death certificates, divorce decrees, adoption papers, passports, citizenship papers, military service records
- automobile and other titles
- certificates of deposit or bank savings certificates
- list of insurance policies and their numbers
- property records, title and deeds
- records of home improvements
- legal papers, leases and contracts
- copy of household goods inventory with photos or video
- names and addresses of your financial advisors and financial institutions
- copy of financial plans, net worth statements
- list of checking and savings accounts by financial institution
- papers pertaining to valuable property such as jewelry, silverware
Step 2: Decide Where to Store Your Financial Records
Step 3: Organize and Store Records Kept at Home
At least one other person should know where all important records are kept and how they are organized, so that in an emergency that person can locate information quickly. A logical place to keep this information would be at the front of the active files. The information should include a list of items in the safe-deposit box and where the key is located.
Benefits of Electronic Organization
Organizing electronically is a great option. You can scan in all of your paper documents, and save copies of all of your electronic statements and receipts. Keep your files on your hard drive (remember to make regular backups and password protect the information), or, if you’re sure it’s secure, store the documents online. By organizing documents on a computer instead of in paper files, you can save a lot of space in a crowded filing cabinet. Remember to keep hard copies of records such as birth certificates and passports.
Step 4: Review and Discard Unneeded Records
- Personal records that provide documentation of events such as birth, marriage, divorce, death, military service, adoption, naturalization, and medical records should be kept permanently.
- Tax records such as federal and state income taxes, gift, and estate tax returns should be kept at least six years. The IRS has three years from the time of filing to assess additional taxes. The time period can be extended however, if you substantially underreported income or for a fraudulent return. Some financial advisors suggest that you keep a copy of your tax returns with documentation for at least 10 years. For tax purposes, papers documenting home purchase and improvements should be kept as long as you own the property or are rolling over profits into new property.
- Housing and investment records such as titles, deeds, trust agreements, wills, retirement plan agreements, and power of attorney documents should be kept as long as the agreements are in effect. Investment purchase and sale records should be kept for 6 years after the tax deadline for the year of sale.
- Consumer purchase records, such as receipts and warranties for major purchases should be kept as long as you own the item or until the warranty expires.