Spring Cleaning your Financial Records

Apr 2018

April 12, 2018
Spring Cleaning your Financial Records by Rick Bloom

It may not feel like spring, but it is. It also means that the majority of you have already filed your 2017 tax returns. Therefore, with winter weather in the forecast, this is a great time of year to do a little spring cleaning of your financial records.
I would venture to say that the majority of people have a fear for some reason of destroying financial records. As a result, they end up saving too much, and when they actually need to find something, they can’t. Since you had to do some organizing because of tax season, this makes it a great time of year to do a little spring cleaning of those financial records.

From a tax standpoint it seems that people tend to save their tax records since the beginning of time. There’s this belief that you should never throw out any tax information; that is just not the case. The way it works from a tax standpoint is that the Internal Revenue Service can audit you up to three years after you file your tax return. That means if you filed your 2014 tax return by April 15, 2015, the audit period ends April 15, 2018. The one exception to the rule is if the IRS claims fraud, such as you underreported your income by at least 25 percent. In that case, they can extend the audit period. However, for the great majority of people your tax records before 2013 no longer have to be saved. Therefore, my general rule is to keep the return itself but to shred all your backup information.

When it comes to retaining items such as brokerage statements and statements from your mutual fund companies, there’s no reason to retain every statement you ever received. The reality is that most statements today are cumulative and the saved by the financial institution; therefore, there is no reason for you to save them. What I generally do is once I receive a statement and I review it for accuracy, I shred the old statement. The one exception is if I was buying an individual stock I would probably retain the original statement that shows the purchase so I have something to prove basis if I ever needed it. This is not necessary for mutual fund purchases because the mutual fund companies keep those records.

I know people that keep their utility and cable bills for decades. My question to them is why? As far as I’m concerned, once you have received a bill and you review it, you can then shred the last statement. There is no reason to save old statements.

Every year we receive new insurance policies from our auto and homeowners company. The question is, when you get a new policy is there any reason to retain the old one, and my answer is no. As far as I’m concerned less is more. In other words, the less stuff you have the more organized you will be. Therefore, when you receive a new homeowners or auto insurance policy, shred the old ones.

There are certain documents that it is important to keep long term. For example, your mortgage documents should be retained until you dispose of that mortgage. The same thing applies to wills and trusts. Once you execute a new will or trust there is no reason to retain the old ones. All they do is add clutter. Therefore, in doing some spring cleaning, don’t forget about those old legal documents.

In disposing of any of this information, notice that I did not say it should be thrown away; rather, I said it should be shredded. A shredder is a tool that everyone needs. Identity theft is a major issue in today’s world, and therefore, it’s important that whenever you have sensitive financial information that contains such things as account numbers or Social Security numbers, you shred it as opposed to throwing it away.

By pruning out your financial files, not only will you have a file cabinet that is not stuffed to the brim and you don’t have to force papers in, but you’ll be in the situation that if you need any financial documents you’ll have no problem finding them. Therefore, before the nice weather comes, why not spend a few minutes going through your financial files and pruning them. Just like cleaning out your closets, cleaning out your financial records can be very liberating.

Good luck!


Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.