Do you feel overwhelmed by the amount of paperwork you need to file and save? Getting a handle on paper can make your life simpler and saner. Here‘s what to keep and what to throw away.
PAPERS TO SAVE
Create file folders for the following and place them in a sturdy box or file cabinet:
- Insurance policies: Save copies of your life, auto, health, and homeowner‘s insurance forms, plus all correspondence relating to them. Keep old auto and homeowner‘s policies for three years.
- Taxes: Save receipts for deductible items (it‘s best to have the canceled check clipped to each receipt), for seven years‘ worth of tax returns as well as all supporting data, and records of nondeductible contributions to an Individual Retirement Account (without proof of IRA contributions, you might have to pay tax on the money when you take it out).
- Bank accounts: Keep all the information received when the accounts were opened, fee and interest—rate disclosures, monthly statements, the past six months‘ worth of canceled checks, passbooks, and statements on the status of certificates of deposit.
- Credit cards: Keep six months‘ worth of statements.
- Debts: Save your mortgage and bank—loan records, and contracts for installment purchases. The mortgage statement that shows how much interest you can deduct belongs with your tax records.
- Employee Benefits: Keep your current plan description, and keep your statement of the status of your retirement account until you receive the next one and have compared them for possible errors.
- Investments: Keep mutual fund, retirement—account, and brokerage—house reports. Save the information you received when opening these accounts.
- Social Security: Save the booklet that explains your social security benefits. Also, request and keep periodic statements of your contributions.
- Warranties: Save receipts for items under warranty, along with the cards showing what repairs the manufacturer will make and for how long.
You‘ll want to save important papers in a safe—deposit box at a bank or in a small, fireproof home safe. Here‘s what to keep in it
- A household inventory: This list will help you prove what you owned if your house burns down. It‘s also helpful to take photos of expensive items or to make a video inventory. Save receipts on expensive items.
- Personal records: Save birth and marriage certificates, all documents relating to separation and divorce, military records, citizenship or adoption papers, death certificates, original trust agreements, prenuptial agreements, records of money owed you, diplomas, licenses, permits, deeds, contracts, property surveys, and titles.
- Wills: Put the original in a safe—deposit box only if your state does not seal the box at death. (The bank can tell you your state‘s laws.) Otherwise, give the will to your lawyer, and a copy to the will‘s executor.
- Life—insurance policies: Again, only save these in a safe—deposit box if your state does not seal the box at death. Otherwise, keep them at home.
- Records that prove the value of home improvements: Save contractor‘s bills and canceled checks. Every dime spent improving your property reduces taxable gain when you sell, so these records can save you a lot of money.
If you can‘t remember your bank card‘s personal identification number (PIN), disguise it as part of a phone number in your address book, along— side a fictitious name.
PAPERS TO TOSS
If your file cabinet is overflowing, here are the papers you can do without:
- canceled checks more than six months old, unless they‘re for tax-deductible expenses, home improvements, or child support.
- Used check registers.
- Bank statements that aren’t part of your tax or investment records.
- Deposit slips, once you’ve made sure the bank entered them correctly.
- Tax returns and supporting data that are more than seven years old. But remember, the IRS can audit six years back if you underreported income by more than 25 percent. It can audit as far back as it likes if you failed to file a return or committed fraud.
- Paycheck stubs, after you’ve received a W—2 from your employer at the end of the year.
- Receipts for regular bills, like utilities.
- Monthly or quarterly statements on investment accounts, once you have a year-end statement.
- Receipts and warranties for items you no longer own.
- All records of investments you no longer own, except those needed to back up your tax returns.
TRAF your paper problems away
The question of what to do with papers—mail, faxes, printouts, and notes—can seem so overwhelming that before you know it, you‘re faced with stacks of clutter. TRAF is an acronym for Toss, Refer, Act on, or File, which are the only four things you | can do with a piece of paper. Remember this system, and you‘ll be sure to keep papers from piling up.
Toss: When in doubt about whether to throw something away, ask yourself if the information is available elsewhere, should you need it. Remember, you can throw the memo away if you write
the time of the meeting on your calendar.
Refer: Pass the paper on to someone else who can handle it better. Forward information requests to people who have the information.
Action: Some papers must be personally attended to. When possible, write your reply directly to the letter or memo, then send it back.
File: Save your important papers—the trick is to remember where you filed them.
MAKING A LIVING WILL
One of the most important papers you can have in your files is a living will. This document specifies your wishes for medical treatment should serious injury prevent you from communicating them.
- It‘s best to have both a living will and a durable power of attorney for health care. In a health—care power of attorney, you designate one specific person to be your agent and make health—care decisions for you if you can‘t.
- A health—care power of attorney is important, as no single document can foresee every health emergency. Sit down with the person you designate and talk about your wishes. It would be helpful to videotape this conversation.
- Assign only one person to represent your wishes, to avoid possible conflicts. You can, however, assign an alternate in case your first choice is unavailable or unwilling.
- For information on getting the right living—will forms for your state, see page 324. If you live part of the year in another state, complete forms for both states. Remember that you can add to the forms to make them fit your needs
- Sign the forms as required, usually in the presence of two witnesses who are not relatives, people who will inherit from you, or physicians who will attend you. In some states, you must sign before a notary.
- In some states, living wills or health—care durable powers of attorney are valid only for a certain number of years. Whether you live in one of these states or not, it is a good idea to review your directives every two years. Initial and date them if they still meet your needs.