“Life truly begins only after you have put your house in order.” – Marie Kondo
Marie Kondo, the tidying expert and bestselling author, encourages tidying by category (not by location) and keeping only those things that speak to the heart, and discard items that no longer spark joy. The end of the year is the perfect time to say goodbye and discard your financial clutter. The problem is many of us don’t equate holding onto financial paperwork with untidiness. We think it’s important stuff we’ll need at some point. But truthfully, most of it’s really not worth keeping.
Here’s what you need to hang onto and for how long:
|Items to Keep
|When to Toss
|Once the claim has been paid, you don’t need these any longer, unless you’re deducting the medical expense on your annual tax return or for documentation of your qualified HSA-reimbursable medical expenses. Then follow IRS guidelines for keeping these bills if you itemize your deductions or for your Health Savings Account (HSA).
|Typically, you could dispose of these after your bill has been paid. If you anticipate selling your home, hang onto the last years’ worth to help potential homeowners.
|Documentation of major loans and insurance policies
|Keep these along with all of your important identification papers (birth certificates, marriage license, Social Security cards, passports, etc.) in a secure spot, such as a safe deposit box at your local bank or a firebox at home. Keep payoff statements forever.
|Annual tax returns and supporting documents
|Keep the most recent three years. You can be audited for up to seven by the IRS (see irs.gov for additional information).
|Keep these until you’ve received your annual W-2 form
|Property records that show improvements to your home
|These can be used when selling a home to offset capital gains when the property is eventually sold. Keep until the house is put up for sale.
|Keep these for one year
|Keep all capital gains tax reports for three years
Source: Hartford Funds, “Tidying Up Financial Clutter”, 2021
For the important stuff that remains, develop an easy-to-follow filing system that you’ll use. Categorize, label, and keep them in a drawer or filing cabinet. Or better yet, switch to digital. Although opting into e-delivery helps prevent additional physical clutter, you may still have a big mess on your hands in time. So, make sure you employ the same thinking there as with your desk. Keep it clean and organized.
Get started now and spark joy by leaving room for the important financial documents and create space in your day by tidying up your financial clutter.
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