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Bank statements. Electric bills. Receipts. Tax returns. Your own personal financial paper trail. If youíve ever moved from one home to another Ė or had a very intense spring cleaning session Ė youíve probably had to sort through stacks of old documents. You may have even struggled over deciding what to keep, what to throw away, and what to scan-and-shred.
Modern technology gives us the opportunity to pay most, if not all, of our bills online. We can even file our taxes online. We can send money and swipe credit cards with a smartphone. And, aside from the routine ATM visit, you do all of your banking in cyberspace. So why not keep all of your financial documentation on your computer or in the cloud?
For most documents, you can. But there are a few important pieces of paper that should remain in paper form. Hereís a breakdown of paper versus PDF.
If you can transfer money or pay a bill online, itís perfectly fine to keep statements from these institutions in electronic form. This includes checking and savings accounts, investment accounts, credit card accounts, and online bill payment portals. Keep in mind, though, that if you opt for electronic statements you should check them regularly to make sure the transactions being made are legitimate. If youíre a regular balance-checker, youíre safe to keep all of your records online. If you feel better having a hard copy or two, you can print a paper version of your end-of-year summary. The statements you do keep can be held for up to a year. After that, you can shred them and throw them away.
Proof of InsuranceIf itís an insurance policy for your car, your home, or your life, youíll want to keep an original paper copy. But, if the policy has expired, or if youíve purchased a new car or home, itís safe to shred and discard those documents.
The paperwork that accompanies a car lease or auto loan should be kept in paper form until the lease or loan is paid off. Always keep the hard copy of the title until you sell the car.
Any paperwork associated with your home, including documentation for repairs and mortgage papers, should be kept in paper form. Youíll want to hold onto these even after you sell you home. Thatís because home improvement projects increase the cost basis of your home, and therefore can be used as tax documentation for up to seven years.
Paycheck StubsSome employers use online services to email paystubs to their employees. If your company doesnít do this, and you get a paystub in the mail, you may want to save these for a full fiscal year. Then, when you receive your W2, you can compare them. If the W2 is accurate, youíre safe to shred your paystubs.
Tax ReturnsWhether or not you file electronically, youíll want to keep tax documentation, from receipts to charitable donations to business and medical expenses. If you make payments and donations online, you should print out a hard copy of these receipts as wells as an electronic version, just in case. Or consider using a tool like Slice that automatically stores all online receipts. Make sure you keep all of these documents for three years. Why so long? Because the IRS says you have up to three years to file an amended tax return. And, the IRS has up to three years to audit you. (It used to be seven years, so three is an improvement!)
Investments and Retirement AccountsIf you make contributions to a traditional IRA, youíll want to keep records of these transactions. Keep a paper record for three years after the transaction to prove that youíve already paid taxes on it. Older transactions can be archived in electronic form.
You should also keep documentation of trades made on a security until you sell it altogether. That way you can document gains and losses. You can keep these in electronic form, and you may want to compare them against your 1099 at the end of each year.
And if your grandparents gave you a few savings bonds, youíre more than welcome to convert paper bonds into electronic ones. This is easy to do and saves you some clutter. Go to TreasuryDirect.gov to make the conversion and keep the e-documentation for the life of the bond.
Call for BackupThe best way to keep electronic records of your finances is by storing them on a secure computer and also having a back-up of all documentation on a thumb drive or cloud storage source. Only keep your electronic documents on a computer that requires a password for login and has up-to-date security software. Make sure you keep the thumb drive in a secure place. If you want to use data encryption, TrueCrypt.org has a free tool that you can use. If you opt for cloud storage, make sure you have a strong password and that the storage provider goes to great lengths to keep your documents secure. Check out FilesAnywhere.com or Box.com.
Ann Hynek is a freelance writer and personal finance columnist. She has a BA in Journalism from the University of Missouri-Columbia and is currently pursuing an MBA with an emphasis in Finance. After spending five years as a broadcast news producer in New York, she is now the Marketing Communications Manager at Personal Capital in Redwood City, CA.
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