Financial Spring Cleaning 2025
Happy Spring, or as I like to call it, Shredder Weather! Now is a good time of year to comb through your physical and electronic financial files and tidy up. Doing so can help you better manage your money and potentially uncover savings.
What to Toss/What to Shred
If you have not yet invested in a shredder, now is a good time to do so. As a reminder, fraudsters love when you throw out important documents, with personal confidential information in your trash, so get into the habit of shredding as much as possible. Here are the categories of financial documents to either shred, toss, or keep.
Tax Returns: Generally, the IRS can include returns filed within the last three years in an audit. If they identify a substantial error, they may add additional years, but the agency usually does not go back more than the last six years. Therefore, keep your returns and all supporting documents for six years, just to be safe. Anything beyond six years can go directly into the shredder. If you work with a tax preparer, ask whether they will maintain electronic copies of all returns filed.
Bank and Investment Statements: If you manage your accounts online, find out for how long your bank/investment company makes your documents available. For those still receiving paper statements, keep them for one year and for taxable investment accounts, flag any confirms of purchases or sales for tax purposes. Hold onto records that are related to home improvements and major purchases until you dispose of the asset. (Note: If you think that you may be applying for Medicaid, many states require that you show five years’ worth of statements.)
Credit Card Bills: Unless you need to reference something for tax or business purposes, or for proof of purchase for a specific item, you can shred them after 45 days. Like the bank statements, flag what you may need for taxes, like charitable contributions.
Utility and Phone Bills: Shred (or delete) after paying, unless they contain tax-deductible expenses.
Home Improvement/Big Purchases: Keep until you dispose of the asset.
Insurance Policies: Keep as long as the policies are in force. Once you have cancelled the coverage or the term of the policy is up, shred them.
Important Docs to Keep Forever: In a fireproof safe, on the cloud or in a safe deposit box, retain birth and death certificates; Social Security cards; marriage licenses; divorce decrees, military discharge papers; and estate documents. If you have any question about whether or not to hang on to something, err on the side of being a hoarder.
Review/Consolidate Accounts:
The start of spring coincides with the end of the first quarter and tax time, a perfect opportunity to review your taxable investments. If these accounts generated too much income or capital gains, you might be better off moving your money into index mutual or exchange-traded funds. Before doing anything, make sure that you understand if there is a tax consequence to moving to cheaper alternatives.
Additionally, if you have orphan investment or bank accounts that need attention, consider combining them. The resulting higher balance may help avoid or reduce fees and even help you get better deals, not to mention, it will help streamline your financial life. The same rule applies to old retirement or investment accounts that are looking for a home. Combining accounts makes it easier to monitor your entire portfolio and ensure that your money is properly diversified.