Keeping documents orderly and well-secured has long been an important part of financial management, and it’s worth investing a little time to get your financial life in order if it’s far from it right now.
Much of what it takes to implement better recordkeeping comes down to finding the appropriate balance between access and security.
Listen now and learn:
- A straightforward set of rules for what to keep and for how long,
- How to securely store physical and digital records
- The best way to safely dispose of documents you no longer need
Listen to the show now or read the in-depth show notes below.
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Show Notes
Welcome to The Long Term Investor. Be sure to subscribe to the show so that you don’t miss some of the great guests and topics I have lined up in the coming weeks.
With tax season in the rear-view mirror, Plancorp hosted a Shred event for clients this past weekend.
One client rolled up with her entire trunk and folded-down backseat filled with things to shred. She told me that she never knows what might be needed and so she keeps everything for at least ten years.
In today’s episode, I’m going to share with you:
- A straightforward set of rules for what to keep and for how long,
- And how to securely store physical and digital records
- Finally, how you can safely dispose of documents you no longer need to keep
Keeping documents orderly and well-secured has long been an important part of financial management, and it’s worth investing a little time to get your financial life in order if it’s far from it right now.
Staying organized with better recordkeeping can also help if you have to do a little more than simply file your taxes.
In the event of an audit, for example, it ensures you have key documents on-hand that might otherwise take time (or be impossible) to obtain.
When there are hard deadlines to contend with—and the potential for expensive penalties—you don’t want to be in a crunch to locate the paperwork you need.
And this isn’t just about taxes, I had a bit of a wild Friday afternoon due to some ongoing laziness with my kids’ birth certificates.
My oldest son Tommy started playing club soccer for the first time this year and this weekend was his first tournament. He has been looking forward to it for several weeks since bad weather caused what was supposed to be his first tournament to be cancelled.
On Friday around 1pm, his coach emails all the parents to let them know that nobody has uploaded a copy of their child’s birth certificate. And in order to play in the tournament, we needed to do so by 3pm.
My heart sunk a little because I knew that his birth certificate wasn’t in my fire safe in my home. I thought maybe it was in a filing cabinet at home, but was skeptical.
Knowing that it might take me a little time to locate the birth certificate – and also being aware that I might not find it at all – I rushed home and proceeded to turn my home office inside out.
I had the original folder from the hospital on the day he was born, including instructions for obtaining a birth certificate, but I ultimately was unable to locate the certificate itself. Honestly, I’m not entirely sure we ever filed to receive a birth certificate for him or his younger brother.
I emailed the coach with a list of other documents I had showing his birthday, but I received a quick response that I had to go to the Department of Health.
So I did just that, and while I was there, I obtained birth certificates for everyone in the family (including my wife and me). I quickly snapped a photo of my son’s and sent it to his coach.
My son got to play in his first tournament with his new team. Sure, it worked out, but I lost valuable hours of work that I had planned on tackling specific topics. To make up for lost time, I had to catch up at less than ideal times.
As I think back about whether my wife and I ever obtained birth certificates for our kids in the first place, I’m sure we delayed it thinking that we didn’t have time for the inconvenience.
Like any recordkeeping, it never seems important until it suddenly is.
Recordkeeping can feel overwhelming because there’s a seemingly endless amount of documentation you need to not only keep, but keep organized.
As you go through your documents, here is a simple rules-based system to determine which items to keep and for how long:
Keep for one year (or less):
- Credit union and bank statements
- Homeowner and auto insurance policies
- Utility and credit card bills
A lot of these are archived online by their respective, so you don’t necessarily need to keep hard copies on hand.
Keep for at least one year:
- Receipts of significant purchases or home improvements
- Appraisals on property
- Mortgage contracts
I’ll sometimes keep these through two years of tax returns.
Keep for three to seven years:
- Any forms verifying information stated on your tax return (W-2s, 1099s, K-1s, etc)
- Bank and brokerage statements
- Retirement account statements
- Records of tuition payments
- Charitable donation receipts
Again, I’m conservative and keep everything for at least seven years, often more. In fact, this year at the shred event, I found myself throwing out stuff from my 2010 and 2011 tax returns, and yet I held onto the documentation for 2012 and onward even though I probably could have tossed it.
Never throw away:
- Social Security card
- Citizenship and military discharge papers
- Birth, death, and marriage certificates
- Adoption records
- Legal filings or records of inheritances
Another good rule of thumb is keeping files on-hand that would otherwise be difficult to obtain (think proof of identity, insurance claims and legal contracts).
You can also check with the IRS guidance for what to keep and how long if you have any questions about whether to keep or toss a specific document.
Digital storage and cloud technologies have reduced the need for hard copies. But many documents I’ve just referenced (particularly those falling into the “never throw away” category), are important to keep in physical form because you may be asked to provide originals.
To safeguard physical documents, consider secure storage in your home rather than a safe deposit box at your bank. While plenty secure, you’re ultimately at the mercy of the bank as to when you’ll have access to your box. Additionally, banks will typically seal the owner’s box in the case of death.
Waterproof and fireproof safes at home are an excellent alternative. They allow access at any time and are usually covered under your home’s insurance policy. Some can even be mounted to floors and walls to prevent theft in the event of a break-in.
If you do digitize your files for your own purposes and ease of use, have at least one hardcopy backup just in case you’re ever asked to produce an original.
And if you do take your financial recordkeeping digital, make sure to do it securely.
Digital files are an excellent way to reduce physical clutter around your home and office, but they also need to be properly protected.
Sensitive documents kept on personal or work computers should be stored in encrypted folders. This process involves the encoding of file folders so only those authorized will have access.
Both Mac and Windows offer file encryption. Third-party software like VeraCrypt is another alternative. It’s both free to use and compatible with all operating systems.
You should also consider encrypting your devices, which prevents unauthorized access to anything on your device should it get lost or stolen.
Like physical documents, it helps to organize and store digital files according to particular categories (health, banking, house, etc) so that you can easily reference the file you need. Maybe this seems obvious, but if you just dump all of your documents into a single folder without any kind of naming convention, it will arguably be more difficult to find a given document than it would be if stored physically.
Many people create a physical document as a comprehensive account of where you keep valuable information, which will be particularly helpful in assisting loved ones in the event of an emergency.
Expect to include personal information, what documents are where and points of contact (e.g., financial advisors, accountants or attorneys). If you go this route, you might also consider including online account information, such as usernames and passwords. To ensure the right people know about the document, it’s helpful to include a physical copy with your estate documents and even your estate attorney.
More and more, I’ve relied on a password manager over keeping passwords on a written document. In part because they change so often, but also because a password manager allows me to easily use very complex passwords without actually needing to remember them.
How to Safely Dispose of Your Physical Documents
Better recordkeeping isn’t just about what you keep. It’s about what you get rid of—and how.
Satisfying as it is to clear your home of outdated papers that aren’t useful anymore, there’s a proper way to get rid of financial or otherwise sensitive documents containing personal information. And it isn’t with weekly recycling.
In the latest year’s report, The Consumer Sentinel Network received more than 4.7 million reported acts of suspected fraud, 29% of which involved identity theft.
Anyone willing to dirty their hands a bit can get a hold of another’s personal information where it is simply tossed out. After all, there’s quite a bit of information to be found on old bills, statements and other documents.
Here’s a list of what identity thieves might find in the average household trash bag if you’re not careful about what you toss into your bins:
- Full names and signatures
- Home and office addresses
- Phone numbers
- Policy numbers
- Medical records
- Driver’s license numbers
- Usernames and passwords
- Routing and account numbers
- Membership information
Next to a secure space for storing hard-copy documents, shredding what isn’t necessary to keep is one of the best ways to safely dispose of files that contain personal or sensitive information.
Most financial advisors have invested in a safe process for shredding and disposing of sensitive documents, so you can start by asking whether they can assist you in the process.
You can also utilize professional shredding services through office supply and shipping companies like FedEx and Staples. Secure shredding usually involves a fee, but it’s nominal in contrast to the benefit of protecting your personal information. Finally, check for free municipal shredding events in your area, which you can find through your city or town website.
Much of what it takes to implement better recordkeeping comes down to finding the appropriate balance between access and security. Organization in this area of your life can make the difference between contending with a major setback or a manageable one.
All too often, life crops up suddenly when you aren’t expecting it—and it’s in those moments that preparedness counts in a big way. Orderliness and good organization of your critical papers and documents is the first step to getting there.
As always, thanks for listening. And until next time, to long-term investing!
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Long-term investing made simple. Most people enter the markets without understanding how to grow their wealth over the long term or clearly hit their financial goals. The Long Term Investor shows you how to proactively minimize taxes, hedge against rising inflation, and ride the waves of volatility with confidence.
Hosted by the advisor, Chief Investment Officer of Plancorp, and author of “Making Money Simple,” Peter Lazaroff shares practical advice on how to make smart investment decisions your future self with thank you for. A go-to source for top media outlets like CNBC, the Wall Street Journal, and CNN Money, Peter unpacks the clear, strategic, and calculated approach he uses to decisively manage over 5.5 billion in investments for clients at Plancorp.
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