Record Keeping 101
What to keep and what to toss

Are you worried about pitching documents you may need at some point? Many people fill their spare room, attic or garage with boxes and filing cabinets stuffed with old bank statements, tax returns and pay stubs. As you finish up your tax return this year, take the opportunity to clean house.

Why should you keep your records?

It’s important to keep good records. In addition to tax purposes, you may need to keep records for insurance purposes or for getting a loan. According to the IRS, good records will help you:

• Identify sources of income. Your records can identify the sources of your income; whether it’s business or non-business, taxable or nontaxable income. 
• Keep track of expenses. Use these records to identify expenses for which you can claim a deduction on your tax return. 
• Keep track of the basis of property. Keep records that show the basis of your property including the original cost and any improvements you’ve made. 
• Prepare tax returns. Good records help you prepare and file your tax return quickly and accurately. 
• Support items reported on tax returns. Keep records in case the IRS has a question about an item on your tax return; the IRS may ask you to explain the items reported.

Also, record keeping is vitally important if you have trouble keeping up with your bills.

“I’ve seen firsthand how a lack of records can affect ones finances,” says Chris Dlugozima, GreenPath financial counselor. “As I help people manage their debt, oftentimes they’ve lost track of their old debts that have since gone to collections. This makes it difficult and time consuming to try to locate them, so we can ensure payments are sent to the right place.”

What to Keep

• Keep your income tax returns and supporting documents for a minimum of three years. If you’re self-employed, keep supporting tax documents for six years. Once the time elapses, shred them. 
• Save year-end investment statements for at least three years. Hold onto quarterly statements until you receive your annual statements and have confirmed that the numbers match. Be sure to keep records that show the initial purchase price for stocks and mutual funds so you can calculate your basis when you sell them. 
• Keep records pertaining to your house as long as you live in it. Records showing your purchase price, and what you spent on improvements, may help when trying to prove the value of your home to potential buyers. After selling, keep the documents for three years. 
• Hold on to records showing how much money went into and came out of Individual Retirement Arrangements (IRAs) and 401(k)s – especially if you’ve made any nondeductible contributions – so you don’t overpay taxes when you withdraw the money. 
• Keeping bank records helps you track your spending, create budgets and provide proof of payment when needed. Keep bank statements and cancelled checks for one year unless you are using them for tax purposes, then keep them for three years. 
• If you have loans and certificates of deposit, store the original documentation somewhere safe and keep the most current statements and get rid of outdated ones. When loans are paid off, or accounts are closed, shred the records. 
• Hold onto sales receipts until the product warranty or the return/exchange period expires. If you need sales receipts for tax purposes, keep them for three years. 
• Keep paid medical bills for one year so that you can see if they qualify for a deduction on your tax forms. Typically, medical and dental expenses exceeding 7.5 percent of your income qualify. Check IRS Publication 502 at www.irs.gov for more information.

Schedule a Money Date

GreenPath recommends that this Valentine's Day, couples treat themselves to a “money date.” Instead of just focusing on your day-to-day finances while hovered over the checkbook -- and ready to pounce on each other -- this is a great opportunity to step back, have a nice night out together and discuss the big-picture financial issues.

“GreenPath counselors are always advising clients that they should work together as a team and this is a perfect way to get started in that direction,” says Candy Wright, GreenPath group manager and financial counselor.

Start with the fun things -- what are your future dreams and goals? Before the date, have each partner make a list of his or her financial goals, then compare them over dinner. This is a chance to look beyond your daily finances and think big. Would you like to start a business? Go back to school? Take time off of work to be with young children?

The next step is to set priorities. What are you willing to give up to reach those goals? This is where you find out whether you and your significant other really do agree. Set both long-term and short-term goals.

It's important to keep a positive tone to the discussion. If you are in credit card debt and one of your goals is to get out, avoid blaming your partner. Work together until you're in agreement and respect each other's ways of reaching that goal. That's one reason why it's good to have this discussion at a nice restaurant, where you're in a good mood and unlikely to argue in public.

It's also a good time to discuss what you would do if something were to happen to one of you. Follow up with some administrative work a few days later: Make sure your wills, insurance, beneficiary designations and other legal documents are up-to-date. In addition, review your budget and investments to make sure they're on track to help you reach the goals you discussed.

Have another money date again next year to assess your progress and talk about other goals. This might not sound like a romantic way to celebrate Valentine's Day, but you'll be surprised at how much you can accomplish when you share your dreams and goals.

Saving to Succeed

Whether you are looking for immediate financial security or plan to build a retirement nest egg, the New Year is an excellent time to focus on savings.

So how can you begin to save? Start by setting aside a portion of your salary to an emergency fund. For help, use our savings goal calculator at http://greenpath.com/tools-and-tips/calculators/savings-goal.htm.

Here are 10 ways you can get started building your emergency fund.

1. Find money to save. Devote any windfalls to savings, including raises, bonuses, birthday checks and tax rebate checks issued by the government.
2. "Walk the Talk." Commit to putting 10 percent of your take-home pay into an interest-bearing account each month and forget it's there.
3. Treat it like a bill. Give yourself a due date and a minimum payment and include this critical payment to yourself in your monthly budget. 
4. Pretend it was never yours. Set up an automatic deposit to your emergency fund from your weekly paycheck. 
5. Pay yourself for dinner. Skip lunch or dinner out and put what you would have spent in the bank instead. 
6. Leave yourself a tip. Every time you tip a server, pay yourself the same amount. 
7. Get cash back. Round up to the nearest ten when you cash out at a grocery, pharmacy or retail register and slip the small amount into your savings jar when you get home. 
8. Keep paying it off. If you recently paid off a big loan, like a student or auto loan, keep paying it, but to yourself. 
9. Invest in CDs. You'll earn higher interest and keep your emergency savings just beyond reach, in case you are tempted. 
10. Start today. It doesn't have to be a large sum, as long as it's something. Small amounts really do add up fast.