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Financial Spring Cleaning

Now that we've passed the tax deadline, it's the perfect time for a little financial spring cleaning. Early Show Financial Adviser Ray Martin tells us what to toss, what to keep, and how to keep it all safe and organized.
Here's a scary fact: a typical family with a home, two jobs and kids will generate more than 1,000 financial statements and receipts each year. People tend to hold onto more of these items than they need, and soon drowning in piles of paperwork becomes a real possibility.

Tax Returns

Most of the questions Ray receives about trashing or stashing financial paperwork center on tax returns. Here are the rules:
Three years: Everyone needs to keep federal and state income tax returns along with any supporting receipts or statements for three years. If you are audited, the IRS can ask for any of this paperwork. For most taxpayers, it's now safe to throw away those 1998 returns.
Six years: If there is a possibility that you may have underreported income by as much as 25 percent, you need to keep your returns for six years. Yes, underreporting can and does happen. For instance, if you receive stock from a grandparent, you may not know how much it originally cost. Then when you sell it and report the gain, you may underreport that amount. To avoid problems, Ray suggests keeping returns for any year that includes a large transaction (sale of property) or irregular income (trust income, stock option exercises).
Seven years: Unfortunately, this seven-year rule is finally applying to a larger portion of the public. If you claim worthless securities - stocks that no longer hold any value - as a loss on your return, hold onto the paperwork for seven years. Anyone who held Enron stock, for example, had the option to claim those losses this year. The bust of the Internet bubble also left taxpayers with worthless stock.
Financial paperwork certainly isn't limited to taxes. Here are Ray's tips on all that other stuff.

Throw Away

  • ATM receipts/deposit slips: These can go as soon as you record the transaction in your checkbook and see it appear accurately on a bank statement.
  • Utility, phone, cable bills: Toss these once you've checked for accuracy and paid the bill.
  • Credit card statements: Again, you can throw these away after checking for accuracy and paying the bill. An exception - keep any statement that shows a gift you made to charity. You will need this for your taxes. Remember to carefully tear up any papers that include your account or card number before tossing in the garbage.

    Keep For One Year

    All of these items can be reconciled with a year-end statement and then trashed. Just keep the year-end statement.

  • Bank statements: Keep those statements that include a tax-deductible expense.
  • Monthly investment statements: 401K is the most common example.
  • Other financial account statements: such as mutual funds or mortgage statements.
  • Pay stubs

    Keep Long Term
    Appliance receipts: Staple receipts for dishwashers, DVD players, etc. to the warranty.

    Home-related documents: As Ray says, a mortgage note is the operating manual for your home. You'll need to refer to your note to make sure any interest rate adjustments are made correctly and to check out any pre-payment penalty. Also hold onto the settlement statement and any receipts for improvements to the home or property.
    Investment confirmation: Keep all documents that confirm purchase and transfers of stock, bonds, etc.

    Keeping It Safe

    Holding onto your financial records does no good if you can't locate them when necessary. Ray recommends using a multi-file box - a plastic box with built-in, expandable files inside - for each year's worth of paperwork. Store these boxes away from the furnace, sump pump or a basement that floods. They cost $8-10 and can be purchased at any office supply store.
    Hard-to-replace documents such as wills or trusts and a backup disk of any financial information that's on a computer should be stored in a fireproof box. Hardware stores charge between $30 and $60 depending on the box size.


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