even one day late paying a telephone bill and it is transmitted to the credit-reporting agencies, you are in default on all your credit cards. You usually receive these change-of-terms notices with your monthly statement.
Organizing Your Information
Keeping personal and financial information organized can be difficult in the world we live in. However, it is important that you take the time as “knowing where everything is” will help you manage your cash flow more efficiently and avoid potential financial pitfalls. Once you get a filing system set up, maintaining information is relatively easy.
Critical Items
A “fireproof” box at home, and/or safe-deposit box at your local bank, will help keep your personal and financial information safe. It is important to note that fireproof boxes can only withstand heat and flame for a specified amount of time, and therefore, you may prefer to keep certain items of importance at the bank. With that in mind, I suggest the following items be stored in a safe manner:
Deeds
Wills
Titles to vehicles
Copies of your mortgages, loans, and notes
Investment records
Retirement and social security statements
Employment benefit information
Copy of your current health insurance information
Homeowner’s, liability, and automobile insurance policies
Seven years worth of tax returns and supporting documentation
Marriage certificates and identification records
Court orders for divorce, child support
Current credit card statements and bank statements
Registration papers for horses and other pets
Also, keep proof of payment of any child support, spousal support, and/or alimony in your fireproof box or safe-deposit box. My business law professor likes to share a story about one of his clients whose ex-wife was supposed to receive support for twenty years pursuant to their divorce, and the man dutifully made every payment. Nonetheless, at the end of the term, the client was served notice that his ex-wife was taking him to court, claiming non-payment of the entire amount! Burden of proof is on the defendant, and if the man could not prove he had made those payments, he could have been found liable to pay them again. As my professor tells it, his client walked into his office with shoe boxes full of cancelled checks—all twenty years worth—set them on his lawyer’s desk and said, “I know this woman.”
The moral? Permanently keep all payment records for anything to do with a court order or loans from a private lender.
Basic Items
Bills
You don’t necessarily have to put basic monthly bills (both paid and unpaid), such as utility, electric, phone, and cable, in a safe. However, tell somebody where these bills are in the event something happens to you. It is also a good idea to write down bills that are due—amounts, terms, and payment addresses of creditors—as someone assisting you may not have knowledge of mortgage payments, or other debts, that are automatically deducted from your checking account or that do not generate mailed monthly statements (a payment booklet, for example).
Proof of Purchase
Organize your receipts. Keep purchase receipts in a folder or large envelope labeled by year. Proof of important purchases, such as diamonds, vehicles, or other big-ticket items, should be in a safe. You may need to produce them in the event of an insurance claim. Take pictures of your property, buildings, and each room in your house and store them in a safe-deposit box away from your residence. Photographs can help you itemize your losses in the event your home is destroyed by fire. Add lists of items in each room, as well.
Equine and Pet Information
Equine and other pet information should also be organized and easily found in the event of your unexpected absence or illness. If you board your horse, be sure that the owner and manager of the boarding barn has an informed contact to reach who can make decisions or take action on your behalf. Provide written instructions for feeding, worming, turnout, farrier, large animal veterinarian, vaccinations, medications, supplements, and special needs—especially if you have your horses on your own property.
Make up information sheets for all other pets, as well. Include your small animal vet and pet sitter’s names, addresses, and phone numbers. Nominate a person who knows your horses and pets, and who is willing to efficiently and competently care for them in your absence.
How Long to Keep Information
How long should you keep important information? This will vary, depending on the item under consideration. Generally, for an individual, tax records and all supporting documentation should be kept for seven years. However, the Internal Revenue Service (IRS) has no time limitation if you ever failed to file a return or filed a fraudulent return. Individual Retirement Account (IRA) contributions, retirement and savings plan statements, and bank records should be kept permanently.
Hold on to brokerage statements until seven years after the securities have been sold and you have filed the subsequent tax returns. It is a good idea to keep credit card statements until the account is closed and reported to the credit bureaus as closed by the consumer. (You only need to keep current statements in a fireproof box.)
Each year, match your paycheck stubs to the W-2 forms from your employer, and if everything is correct, you can throw the stubs away. W-2s can be thrown away after seven years.
Receipts for improvements or remodeling your premises should be kept until seven years after the home/farm is sold. These costs are added to your cost basis♦ in determining capital gains upon the sale of the property (see p. 138).
SO YOU KNOW…
♦ Cost basis or basis is a tax term for an asset’s purchase price plus the commissions and expenses necessary to make the asset usable, or to improve it.
Insurance
An insurance policy is a contract between you and an insurance company wherein you pay a premium (a fixed amount that is paid, usually per month), and in exchange, the company promises to pay for specifically named losses in the event they should occur. It is financially responsible to insure your household in several different areas; I have outlined some of them on the following pages.
Life Insurance
A life insurance policy is important for managing personal risk. For instance, if you die and your household is negatively affected by the loss of income, your spouse and dependents, including animals, will be cared for. Ideally, you would want your spouse to be able to pay the mortgage, household bills, invest for retirement, and maintain a lifestyle close to what he or she currently enjoys. Life insurance can also provide benefits during your lifetime—some policies are designed to help you finance your retirement or a child’s education through cash value♦ build up.
There are