Thanks for viewing this workshop, De-Clutter: tips for managing financial files and records. I’m Janel Cross, one of your MoneyNav coaches.

If you’ve attended a MoneyMonday session already, you’ve been introduced to the three stages of financial wellness. If this is not familiar to you, make plans to join an Intro to MoneyNav session offered at the beginning of every month or our Money Milestones course which takes a deep dive into each stage.

This session, De-Clutter, is a core course appropriate in any of the three stages.

Okay, let’s get started. While the world becomes more paperless, there are still some filing cabinets out there overflowing with paper documents.

While we all have preferences and habits, we do recommend transitioning to a digital filing system even if only as a backup for your paper files. If you are currently a paper filer, this presentation will outline the documents you should scan and save in digital form.

For the digital filers out there, this presentation should help you set up and organize your folders.

When storing documents, ask yourself:

  • How would I recover files if I had a flood or fire or simply lost track of an important document? Having a digital backup can be invaluable. But what if your computer crashed? Make sure your digital files are backed up to a cloud-based storage system.
  • Are your files organized in a way that makes it easy for you to find what you need? Being able to search for information is essential whether in digital or paper form. Also, in the event of your death or disability, your loved ones may need to find important documents. So, being organized is good for you but it’s also good for others.
  • Do you have enough storage space for your documents? If your paper file storage is overflowing, and you clean out old documents, be sure to take special care to destroy anything that contains personal information. Storage space is less of an issue with digital files but there are generally limits on cloud storage space that you’ll have to keep in mind.

While keeping information secure is top of mind these days, it’s also important to have at least one person who knows where you keep important documents. This is an exercise that is important across generations, too. If your parents are living, ask where important documents are kept. If you’re single, be sure you share this information with someone you trust.

Okay, with our file structure in mind, let’s talk about what documents you should keep and for how long. Let’s cover home ownership documents first.

You should retain:

  • Settlement sheets from your initial purchase and any subsequent refinances. Buying and selling a house is a reportable transaction on a tax return. You’ll need to reference these documents in the year of any transaction and also to prove your basis when you sell the property. Keeping track of cost basis is important and can save you tax dollars when you sell. Refinancing includes costs that increase your cost basis and keeping good records ensures you don’t pay more tax than necessary.
  • The title and deed are usually kept by the lender while a property is mortgaged. They will be given to you when you pay off the mortgage. But you can request copies of these documents at any time.
  • Keep records of all home improvements. Like refi costs, home improvements increase your basis, or investment, in your home. Keeping track of your spending to improve your property could save you when you sell. Keep a list of improvements, dates, and costs. You do not need to track repairs and maintenance, however. Current law allows individuals to exclude up to $250k of gain from taxation and $500k for married couples. So, keeping track of your cost basis is especially important for higher-value properties or those owned for a long time.

When it comes to homeowner's insurance policies, save the current one. Also, maintain an inventory of valuable assets in your home like art, antiques, etc. Ask your insurance carrier for a checklist you can use. Finally, when you pay off your mortgage, be sure to keep any files from the lender that show proof you paid it off.

Okay, now let’s tackle tax documents and records. Arguably the most important items to hold on to, you should save your returns for 7-10 years. Although you’ll see recommendations for as little as 3 years, most CPAs recommend maintaining a seven-year history.

Or, since digital records are easy to store, you might want to keep them forever. A few years ago, while helping my grandparents move, we found tax returns from the early years of their marriage. It was fun to think about how they got by on so little! You should retain your federal, state, and local returns as well as the tax records used to prepare returns including W2s, 1099s, etc.

What about all of those investment and bank statements?

If you’re lucky enough to still get paper statements, your mailbox is probably complaining. Many companies no longer send paper statements unless you ask for them which can make it easy to lose track of what you have and impossible for someone else to figure it out in your absence.

For this reason, one of the most important documents you can maintain is a list of financial accounts: investments, banking, mortgage, credit cards, etc. Set a reminder to update this list at least annually. Tax time is a good time for that. This list also makes it easy to ensure you have the tax documents you need to prepare your return each year.

While the statements for most accounts can be retrieved online, I like to keep year-end and most current statements. When a new statement arrives, I delete the old one except for year-end statements which I keep. I like to look back on old statements to see my progress over time.

When you transfer or close an account, make sure you indicate that in your files. This helps you but it really helps a loved one that might need to help you in an emergency. In a digital file system, I simply change the file name to include the word “CLOSED or TRANSFERRED.”

Finally, if you inherit accounts, keep records associated with the account you inherited. Some assets require cost basis accounting and having these records will help your financial professional ensure the tax accounting is accurate.

There are some documents you should retain indefinitely. These include

  • Legal and Estate Documents
  • Insurance policies – keep your current policy only to avoid confusion. A common wild goose chase is trying to figure out if old life insurance policies are still in place when someone dies.

If you have physical stock or bond certificates, consider depositing them in a brokerage account for safekeeping. If a physical certificate is lost or destroyed, the value cannot be recovered.

If you are eligible for a pension benefit, keep documentation of your benefit and how to apply for it. If you already applied, keep your election forms.

Keep Marriage and Divorce documents which you may need when applying for Social Security benefits. Also, custody agreements, birth certificates, and adoption papers. These are documents you should keep in both original, hard copy, and digital forms.

We haven’t covered all documents. And that’s because some things you don’t need to keep. Including…

There’s no need to keep bills for things like utilities, internet service, or your cellphone. Consider signing up for the online account and consider setting up auto-pay. This is good for your files and your credit score!

If you still get a paper paycheck stub, there’s no need to file it. But be sure to check it from time to time to make sure your 401k contributions and other withholdings are correct.

In our Start Smart and Dollars & Sense workshops, we talk in-depth about creating a spending plan or budget. A great way to do that is to save all of our receipts for a month or two at a time. But once, you’ve tallied that spending up and documented it in your spending plan, there’s no need to hold on to receipts. Owner manuals – they are all available online.

Owner’s manuals are taking up precious space in kitchen drawers all across the country. No need to hold on to those either since you can find most of them online.

There’s also no need to hold on to expired items like credit cards, driver's licenses, passports, etc. Be sure to destroy these items when you discard them though. But, you might think twice before you get rid of keepsake items. I still have my college student ID to prove to my kids that I was young once too!

A few tips for document destruction before we move on… if you don’t have a shredder, check with your local UPS or copier store. They often have shredding services. If you are getting a new computer, be sure to do a factory reset of the hard drive after you’ve backed everything up and checked your backup. This is the digital equivalent of document shredding. If you aren’t sure how to do this, check with places like Best Buy’s Geek Squad.

Let’s take a minute to talk about some best practices for keeping your digital files secure.

Get the proper storage – some are free, and some come at a cost. But be sure there are data security systems in place to protect your information. Stick with the major brands that are most likely to still be around in 50 years. Google Drive, Dropbox, and Apple iCloud are some examples.

A scanner is great to have on hand, too. This makes it easy to create digital versions of any paper document. If you don’t have a scanner, you can use your phone.

Encrypt folders and documents and also encrypt emails when sending these documents. To find out how to encrypt a file or email, just Google “how do I encrypt.” It’s generally straightforward but varies for PC and Macs and also the program you’re using.

There are some things that should be kept in original, hard copy form. Those items are best retained in a fireproof lockbox to keep them safe from fire, flood, and theft.

Finally, it’s impossible to over-emphasize the importance of protecting your online accounts. Use strong passwords and, when possible, add two-factor authorization which is the process that sends a code to your phone any time you log in.

Also, avoid keeping a written list of passwords or even a document called “passwords” saved on your desktop. Better to use a password manager like Last Pass. Password managers have a master password and then all of your site credentials are stored inside. They are also great tools for helping others, think your less than tech-savvy parents, go digital. Last but not least, consolidate accounts when possible. If you have five 401k accounts out there from previous employers, that’s five more sites that could be hacked by cybercriminals. Consolidating is good for safety and simplicity.

Let’s wrap up our session with a brief discussion about how to help your next of kin respond in the event you are unable to handle your financial affairs.

No matter what your age, it’s always good to have someone who knows where your stuff is (assets, documents, etc.)

Include a list of essential points of contact like your accountant, attorney, financial advisor, etc.

Be sure to identify the location of important documents. If you are not able to handle your finances, be sure you have a system in place for someone else to stop in. A financial Power of Attorney is a legal document that allows someone to take over your financial affairs if you are disabled. An executor is a person appointed in your Last Will and Testament who can settle your financial affairs in the event of your death.

Make sure anyone you named in your estate documents has a copy. Also, consider providing your financial advisor with documents, especially your Power of Attorney.  

Finally, be sure to understand what is and what is not handled by your Will. Beneficiary designations for accounts like 401ks, IRAs, and life insurance supersede instructions in your Last Will and Testament. Your Will gives instructions for the disposition of assets that do not have a beneficiary like personal property, bank accounts, etc.

For more information on estate planning, check out the Estate Planning Basics workshop.

Then just keep taking the best next step. Google is full of advice. So are family and friends. But not all advice matches your situation. We are here to help you figure out what the best next step is for YOU, right NOW, so you wind up where you want to be.

Thanks for viewing this De-Clutter workshop. But don’t stop your wellness journey here.

If you haven’t already, a great next step is to complete your MoneyNav assessment. This questionnaire takes about 5 minutes and results in a series of To Dos, or best next steps, that are built into your personalized MoneyNav dashboard.

You can also schedule to meet 1-on-1 with a coach. Be sure to keep joining us for MoneyMondays. To view upcoming sessions and to sign up, visit www.moneynav.com/moneymonday.

On behalf of the entire MoneyNav team, thanks for joining me! If you have questions on this topic or another, please reach out. We look forward to connecting with you.