Did you feel a little overwhelmed when it was time for you to prepare your taxes?
It can be a little daunting to sift through all the financial paperwork you need in order to file your return. Take this year’s tax season as an opportunity to make a positive change in your home and get yourself and your financial life organized!
Getting organized doesn’t have to cost a thing and once it’s done, you’ll save yourself time and effort when things are clearly labeled and easy to find. Here’s how to get your financial life in order:
Clean the Clutter and Trash What You Can
The easiest way to start organizing is to clear out what you no longer need. If you’re unsure of what you need to hang on to, and for how long, check out these simple guidelines:
You need to prove you made a payment.
You need to verify something related to taxes.
If your paperwork in any way relates to taxes, you need to hang on to it for 7 years (for self-employed individuals, this would include things like receipts and proof that you were legally entitled to any deductions you took). The same goes for your actual past tax returns. This way, you can always prove to the IRS that the information on past tax returns is accurate.
For other financial documents that do not relate to taxes, a good rule of thumb is to keep things for one year. Examples include bank and credit card statements. If you have loans or insurance, keep the paperwork related to either for as long as you have the loan or the policy.
Make sure you’re only saving and filing what you actually need from anything new that comes into the system. In other words, make sure the ripped-open envelope is thrown in the trash, not in your paperwork pile. And when you do go to throw anything away, always use a shredder to protect sensitive information.
If you’re comfortable with having most of your life on your laptop, you can turn your financial life into a digital format as well. This makes it easier to get and stay organized, since you don’t have any tangible materials to hang on to. It also saves space as files and folders are on your computer and not physically in your office, and saves money as you don’t have to buy any organizational supplies.
Make it a habit to scan in receipts, paystubs, bills, and other financial documents before securely discarding them. Switch what documents and statements you regularly receive via snail mail over to electronic delivery. When you receive these, save them to a designated spot. Be sure to use a system that is safe, reliable, and is regularly backed up. Cloud-based storage systems work well.
Maintain the Habit
Once you get yourself organized, you’ll need to work to stay that way. Anytime you feel like throwing documents in a pile and think, “I’ll straighten those out later,” remember how much easier life (and tax time) will be if you take five minutes to file everything away into its designated space right away. Spending a little time and effort today on maintaining your organizational habit will save you a tremendous amount of both in the future.
The information in this article was verified by our own Tax Expert, Carrie Smith, founder of Careful Cents.