How long should you keep financial documents?
Are you a pack rat or a tosser? This matters when it comes to financial documents. A tosser is someone who throws the bill away as soon as they pay it. A pack rat is someone saves every bill they have ever paid. But how should you really handle financial documents? It is a tough question. I found I lean more towards the pack rat side, even though I know I don't need to.
There are some financial documents that need to be saved long term. Tax information such as the actual tax return as well as any correspondence with the IRS or state government should all be kept for a minimum of seven years. Personally though, I plan on keeping these items forever. OK, maybe in 20 years I will eventually throw away some of our first tax returns, but I guess I figure it won't hurt if I keep them and it would be a big problem if I ever needed them and didn't have them.
I also think that a person should keep all documents relating to the sale of a property forever. Not just when you sell a property, but also when you buy a property. You also need to keep any receipts or statements for contribution you make to an IRA for your lifetime. Other than that, all other financial documents can be tossed after a year or so.
Utility bills, credit card statements, paychecks and bank statements can be shredded or burned after a year. There are some exceptions though. Personally I would probably save the last paycheck of the year each year. Also, if you have negotiated any sort of settlement on a credit card or medical debt then you need to save that documentation forever. I have heard of collection agencies hunting people down 10 years later, claiming the person never paid the debt. Have your proof so you don't need to worry. As for retirement statements, it is good to save the year end statement of all your accounts.
Those guidelines being said, I prefer to do things differently. For instance, I like have utility records for several years. This is really only for the electric and gas bills that I pay for what I use only. I really like to compare the current year with previous years. But I don't keep them forever. When I move, I toss all but the last statement. I never keep more than two or three years. I have kept all mortgage statements that I have received, although really I don't need to. Usually I move within a couple of years and throw them out then, so they don't accumulate much. Now that we are in a permanent home, I will have to purge them every couple of years.
Medical records can be tricky. Again if you have settled any debt, keep those statements forever. I have had insurance companies report things to collections for not being paid even though they never billed me. I have had things turned over to collections even though I paid. I have had doctor's offices send things to collections because the insurance wasn't paying what they should.
It appears I don't have much luck in this area. I have had everything resolved quickly though because I have kept my records, particularly from any hospital stays. Those seem to generate the most problems. Some of these problems have popped up several years after the fact. I would keep any large bills and statements longer than the recommended year, just to be safe.
What about receipts? Many people throw away receipts the minute they walk in the door. A few people keep them forever. I am in between. The bigger the purchase the longer you should keep the receipt is my motto.
Before you think I am a total pack rat, I have just learned that it is better to have things too long than not long enough. That being said, I have a two drawer filing cabinet. So all these things I am keeping for a long time fit into this cabinet along with many other things. As the cabinet gets full I weed things out that I no longer need. I hope this helps other people who are trying to figure out how long to hold onto financial documents.