Weapons of Mass Destruction and other Clutter Bombs
My name is Stacy, and I am a Financial Packrat.
I come by it honestly from a long line of packrats and I have passed this gene to my daughter. I completely understand where this bad gene comes from; my grandparents were depression era children that through hard work and American entrepreneurial spirit went from poor to wealthy. They kept EVERYTHING, and my mother learned these skills and passed them on to me. I elevated this hoarding by meticulously organizing and labeling my financial records and keeping them FOREVER.
Three years ago we sold our home and downsized to our retirement home. This forced me to take some action to de-clutter and destroy old records. This month we are clearing out 15 years of business records in preparation for my husband’s retirement. Doing this project again has brought me to reflect on simplifying our lives as we prepare for our retirement life. My big hairy audacious goal is to become paperless. Not gonna lie about it, this is the second year I have said this…Baby steps I tell you!
So what is really essential to keep and store? What can you toss and when? And what form of records are necessary- paper or electronic? When you choose electronic what kind of backup plans do you need to prevent loss in the event of the dreaded black screen of a hard drive loss? What is the best method of storing paper records?
What to Keep and How Long to Keep them & How to Store Them
Forever Records:
Birth & Adoption Records, Marriage & Divorce Records, Wills, & Trusts, Military Discharge records and Passports fall in the category of forever records. Since these records are paper records fireproof storage is important. Either a safe deposit box at a bank or a fireproof safe in your home are good choices.
Family Photos also fall into this area. I plan to digitize mine when I retire, it will be a good project for the winter months. Currently I am working on a digital project for my mother’s upcoming 80th birthday. My siblings are sending me family photos to incorporate into a digital photo frame. I am going to also put this on a thumb drive so mom can watch them on her TV.
Tax Records:
Tax Returns 3 years
W-2’s 3 years
1099’s 3 years
1098’s 3 years
All of the other backup documents used to prepare the tax returns in case you need to prove deductions in the event of an audit. Electronic copies of these records can be used, but keep a good backup in the case of a hard drive crash. Recreating these records for an audit could be time consuming and expensive. Another thing to consider are returns that accounted for specific property related events that involved deferring capital gains. My first three home sales involved deferring capital gains, including one 1031 exchange. My CPA tells me I need to keep these records until 3 years after the last property is disposed of because the deferred gain has been carried forward for 25 years.
Paystubs, Bank Statements, Credit Card statements, Utility Bills. Paystubs can be tossed after reviewing your annual W-2. Bank Statements need to be reviewed upon receipt. In the event of unauthorized ACH or EFT charges you have 60 days to notify your bank and file a dispute. I am a big fan of paperless statements but keep in mind most financial institutions only store them online for a specific period. You can get a copy after that, but there may be a charge. Financial institutions usually only keep 7 years of history available. I am a firm believer in tracking utility expenses as a means of both controlling your expenses and predicting the cost of living in planning for FI/RE. But seriously do I need the statements when I have already tracked them in Excel for 10+ years- I don’t think so.
Brokerage and Retirement statements have a pretty long shelf life for capital gains reporting requirements. You need to know your basis when calculating capital gains at sale time so keeping these records for an extended period is a really good idea. I am in favor of electronic records for these types of accounts. We tried for years to get copies of lost records for my husband’s IRA with an annuity life company that had been acquired by another company. This was not a good outcome as they did not have complete records and could not provide us a history or even a copy of the contract. We ended up doing a rollover into mutual funds to get control of the situation. We decided if they were that difficult to deal with on getting records they would be a nightmare to deal with on distributions. I was completely on board with this as it was one of the lousiest financial investments that he was ever “sold”. Digital copies that are backed up on an external hard drive in a fireproof safe or encrypted in the cloud will keep the info safe and secure.
Medical Records are extremely important as healthcare becomes more complicated. Many providers have HIPPA compliant online health record systems, but they don’t all talk to each other. So your Primary Care doc may or may not have record of your ER visit or visits with other providers. I believe in integrated medicine where the collective knowledge can lead to better comprehensive care, so having the records available for your healthcare team can trump just filling out those health questionnaires that they hand you when you check in for your annual visit. With the ACA you also need proof of coverage for 3 years for your tax return. If you plan to keep these in digital format you probably want them backed up on an external hard drive in a fireproof safe or encrypted in the cloud.
Real Estate Records like your Mortgage statement, HUD-1 Settlement statement, Title Policy, Mortgages or Deeds of Trust, Reconveyances of Deed of Trust or Satisfaction of Mortgage are important documents to keep while you own the property. If you sell a property that had deferred capital gains or was involved in a 1031 exchange you will need to keep records of your capital improvements used to determine your basis for an extended period of time. Talk to your CPA about your situation if this fits your financial profile. Electronic copies of these should be sufficient with the exception of the original recorded Reconveyances of Deed of Trust or Satisfaction of Mortgage on any property that you own. That is your proof that you paid it off. Most counties have electronic records of these recorded documents, but that has not always been the case and they may not be available on the internet.
Receipts, Warranties, Owner’s Manuals may be helpful while a product is in the warranty period. Scanning and organizing the receipt and warranty saves a ton of space. I am downloading digital copies of the owner’s manual which has the added bonus of being very handy to access on my iPad while I am out in the shop troubleshooting a piece of equipment.
Bottom Line:
Most of the stuff we keep can be kept in a digital format on our hard drive, backed up in a fireproof safe or stored in the cloud. There are relatively few documents that we need to have hard copies of and they will fit in a standard safe deposit box at your local financial institution if you don’t have a fireproof safe at home. You can’t deduct the cost of the safe deposit box going forward, but it is a necessary, reasonably priced location for your extremely valuable stuff. And this month I am going to the secure shredding place with 24 boxes of records to be destroyed. One more baby step towards paperless!
