Best Practices for Personal Financial Record Keeping

​The beginning of a new year is an ideal time to sort and organize important documents, creating more space to your home. Image courtesy UTIA. 

The beginning of the year is a great time for many people to take stock of their financial situations. Many people set resolutions to save more, give more, or use credit cards less but for 2018, University of Tennessee Extension consumer economist Ann A. Berry suggests making a resolution to organize financial records and “get your financial house in order.”

According to Berry, “Debit card receipts, ATM receipts, credit card bills, bank statements and canceled checks all document where your money goes. But they take up precious space in homes, and keeping all of these records indefinitely can be unnecessary.”

Berry continues, “Developing a plan for managing financial paperwork is vital. This plan should prioritize keeping only those paper documents that are necessary, and keeping them only for the required length of time as well.” Records that would be difficult to replace should be kept in a fireproof home safe or safe deposit box. Being able to access records quickly should also be a priority, so be sure to keep files organized, either physically or electronically.

One of the most important reasons for keeping financial records organized is that federal tax rules require citizens to have receipts and other tax return support documentation for as long as the IRS can assess additional tax. According to FDIC tax policy managers, this is up to three years from the date you file your return, but it can be six years if the IRS suspects you underreported your income by more than 25 percent.

Berry outlines a reasonable financial record retention schedule below:

​-       Canceled checks that have no tax or other long-term purposes can be destroyed after a year. File those that support tax returns, such as charitable contributions or tax payments, keeping them for at least seven years. File and keep indefinitely any canceled checks and related receipts or documents for a home purchase or sale, renovations or other improvements to property you own. Also keep documentation for any non-deductible contributions to an Individual Retirement Account (IRA) indefinitely.

-       ATM, deposit, credit card and debit card receipts should be saved until the transaction appears on your statement and you have verified the accuracy of the information. Businesses sometimes ask if you want a paper or electronic receipt, as electronic receipts (including a cell phone picture of the receipt) are sufficient for this purpose.

-       Credit card and bank account statements should be saved for one year if they have no tax or other long-term significance, but file and keep the rest for up to seven years.

-       Credit card contracts and other loan agreements should be kept as long as the account is active, in case you have a dispute with your lender over the terms of your contract.

-       Documentation of your purchase or sale of stocks, bonds and other investments should be retained while you own the investment and then seven years after that. Berry recommends these records be kept in a safe deposit box.

Berry also suggests investing in a quality crosscut shredder, and says bargains on these machines can be found at many types of stores this time of year. “A crosscut shredder slices the paper both horizontally and vertically, turning the documents into small pieces that are harder to put back together. This can protect you from identity theft, which costs victims an average of $1,343, much more than the cost of a shredder,” she said.

Records that should be shredded, not just discarded include:

- Any documents with your social security number, bank account number or credit card number

- Any documents with your signature as identity thieves could use it to falsify other documents

- Employer pay stubs

- Monthly bills

- Expired credit cards, driver's licenses or other identification cards

- Prescreened credit card offers

- Explanations of benefits from medical, dental or vision insurers

- Tax forms that are more than seven years old

- Any documents with a password or PIN

- Any other documents with personal information you would not want a stranger to see to avoid the possibility of someone stealing your identity or accessing your accounts. 

Purchasing a fireproof safe to prevent document loss in the case of a disaster is also an important step for Tennesseans, cautions Berry. These can be purchased fairly inexpensively and are well-worth the initial investment to protect both your important documents and your peace of mind. Fireproof safes will protect documents for most fires, floods and tornadoes.

For additional help getting financial records and documents in order, see UT Extension Publication W223, Important Information, on the UT Extension website. Choose the “Publications” link along the top of the page and then enter the publication number in the search engine.

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Contact:

Ann A. Berry, professor and consumer economics specialist, UT Extension, 865-974-8745, aberry9@tennessee.edu​