Creating a filing system

In a previous post we designed a simple filing system to help us keep track of which bills had been paid. Now we want to expand that system to more thoroughly manage other important paperwork such as tax documents, warranties, auto maintenance records, ect…

Be sure you know the condition of your flocks, give careful attention to your herds; for riches do not endure forever, and a crown is not secure for all generations.

Proverbs 27:23-24

The first thing to consider when creating a filing system is which documents you need to keep and for how long. While there is room for personal preference when designing your system you don’t want to go too far to either extreme. I admit I went a little overboard when I first started filing. I saved everything for years– utility bills, paycheck stubs, credit card statements, even the return envelops that came in the bills that I paid on-line (you know, just in case). While I’m an advocate of being safe rather than sorry, I have to say that my caution was not rewarded in this case. I ended up with two file cabinet drawers filled with years of worthless documents, a good portion of which were from a house in another state that was sold years ago. So while we are going to be prudent while we design our system, we are going to ensure that the documents we save are really important enough to hold on to.

So how long should we hold on to paperwork? That depends on what it is. Tax paperwork is usually the most important because the IRS can audit you for up to six years. So for tax forms or paperwork regarding assets that are taxable (such as a car, home, or stocks) we hold onto for at least 7 years. In the case of a taxable asset you want to make sure that you don’t start the counter on that seven years until it’s no longer in your possession. As long as you own it, keep all the paperwork for it. This includes any paperwork for maintenance or home improvements as they can help reduce your tax liability. The tax returns themselves I make sure to hold on to indefinitely. If any future errors are found in things like social security or a retirement account you can use them to track the problem back to when it started. You can save a lot of space by just scanning the returns into your computer as opposed to storing them in a closet. The documents themselves aren’t worth anything, just the information on them.

Non-tax related paperwork has a wide range of recommended hold times. As far as utility bills, credit card statements and paycheck stubs, you probably won’t ever need them more than a month after they have been paid or deposited but I usually hold onto mine until the end of the year and then carry over the last two months into the New Year just to play it safe. Sense you only get 12-24 each year and you already have a folder for them it doesn’t take up any extra space to play it safe. Bank statements are the same way except at the end of the year I throw all of them out except the year end summery. If you don’t want to hold on to these for that long it probably won’t hurt you. You can usually get another copy from your bank if you ask. As far as insurance paperwork, hold onto everything for as long as you have the policy or have claims open plus one full tax year. This doesn’t include those “explanation of benefits” papers you get after each time you go to the doctor. If there is a long term purpose for those please let me know because I put those straight in the trash.

More permanent things such as medical records (not insurance statements or explanation of benefits), pet records, insurance policies, and warranty information you’ll want to hold on to for as long as long as you have the object that it belongs too. In the case of medical records or pet records, that means as long as they’re alive.

In the next post we’re actually going to get our files set up but in the mean time you might want to get acquainted with your scanner. Scanning documents saves space in your house and doesn’t take up much space on your computer. In fact, I have about ten years worth of paperwork saved on a 2 GB flash drive that I keep in a fireproof safe as a backup. If you’re super computer savvy then you may not even need to keep paper files. Programs like Quicken will allow you to scan copies of your bills directly to the program so you can keep digital copies for years to come. There are also digital document organization programs out there for a price. If you know of any good free ones, please let me know. For those of us who prefer to be able to spread out our papers in front of us while we work, then I would recommend keeping the paper files and once a year scanning the old stuff to the computer. Just be sure to make a backup and keep it in a safe place.