Good recordkeeping can save you headaches and money,
and make life less complicated.
Getting organized isn’t just a matter of convenience:
tax preparers charge less when they don’t have to sort through a mess. And having
good records of securities costs and farm improvements can significantly cut taxes
when it is time to sell.
Break it Down
There are no shortcuts to good organization.
The first step is to create general filing categories that can be subdivided.
People tend to create single files on huge topics,
such as taxes, rather than breaking them into more usable groupings. Or they
tend to use a straight alphabetical system, which can fall apart because they
forget whether the family van is filed under "car" or "truck."
While rethinking your paperwork problem, you should
pay attention to your bill-paying pattern as well.
Filing is an annual routine, while bill paying is
a monthly cycle. Consider a portable file-box with three compartments: one for
credit-card bills, one for the other bills, and one for checking account statements.
Once the credit card and other bills are paid and the checking account is balanced,
the material is transferred to one of 12 monthly files.
What to Throw?
Knowing what to throw out is just as important
as knowing where to put it. So weed out your papers with a careful eye on the
Internal Revenue Service’s statute of limitations.
Some papers can be discarded almost immediately.
Brokerage statements, for example, should be kept only for the latest month
and year’s end, unless they contain information on securities transactions.
Documents that support your tax return, such as receipts
for charitable contributions, need to be kept for at least three years, although
the IRS has six years to raise questions. There is no limit if the IRS suspects
Other papers need to be kept longer because it may
be decades before they are needed. Among those are records of contributions
to non-deductible individual retirement accounts, real-estate deeds, and receipts
for big-ticket items with replacement costs exceeding your home-insurance deductible.
Also keep appliance lifetime warranties for as long as you own the product,
but toss the limited warranties once they expire.
In clearing out your files, make it a practice to
shred or tear up any mail or documents with your Social Security number or other
If you want to cut clutter electronically, the
latest crop of organizers saves things in neat rows of data and readily retrieves
arcane bits of information.
Computer makers think everyone needs a personal digital
assistant. There are special versions for students, professionals, and e-mail
buffs, as well as PDAs that double as cell phones.
People with links to the Internet can use Web-based
systems to store their appointment calendar, private "phone book"
or to-do list, and check their schedule or find a phone number at any Internet-connected
computer in the world.
The higher-end systems exchange data with desktop
computers, electronic organizers, and cell phones.
Having your assets in fewer places also makes it
easier for family members to take over should you die or become incapacitated.
These Web sites are free tools that offer digital
calendars, address books, and notepads, plus the ability to synchronize data
from other electronic organizers, such as personal computers, cell phones, and