I have a file cabinet at home with bank statements dating back to when I opened my first checking account when I was sixteen years old. Nine years later, I wondered if I still need those bank statements. I also have every tax return I have filed, ever. Do I need those? I did some digging, and I found a great resource. Here is the synopsis:
Tax Returns – You need to keep all documentation around your taxes for at minimum seven years. The statute of limitations for the Internal Revenue Service (IRS) to come after you for back taxes is three years, so that is where the minimum comes from. However, if you have failed to report income, the statute of limitations is six years. To cover yourself, it is best to have a seven year record of taxes. Just to be safe, it is probably a good idea to keep your form 1040 and record of payment to the government for life, but you do not need the backup documents for more than seven years.
Bank Statements – Did you give a charitable contribution or make a business expense payment on your credit card or bank account statement? If you ever have to show proof of a deduction to the IRS, you need that statement. Like tax returns, keep them for about seven years.
Brokerage – The best advice I can find here is to keep your year end statements and trade confirmations indefinitely, but you don’t need to keep your monthly statements more than two or three months in case you find any errors. When you sell a security, you have to be able to prove the original cost for capital gains taxes. That is why you need your year end statements so long.
Retirement – To make sure you are safe if you ever have to withdraw principle (not interest earned) from a Roth or other retirement account, you have to able to prove what you put in and when you put it there. That means you need to keep retirement statements until you are at a point when you can withdraw tax free. For many of us, that means 40 years or so of records.
Utility Bills – If you have a long record of cell phone, power, or other utility bills lying around, you can free up that space today. You don’t need more than two or three months of history that can demonstrate that your payment was send and received. Once your account is correct, toss it in the shredder.
Insurance – If you have any records of claims and policy details, keep them as long as you have the policy. If you do not have proof and you ever have to challenge your insurance company, you need to have records or it never happened. For health insurance, make sure you have evidence of coverageso you are never hit by a pre-existing condition clause (while that is still legal).
Paper or Electronic Records?
I have a hybrid system. For my bank accounts, I have paper records because I never took the initiative to change to paperless and scan in my old files. For accounts that I have opened in the last five years, I have just started with electronic statements and keep them saved on my computer hard drive and an external hard drive. I also plan to buy an encrypted USB to have a third backup for only financial documents.
It is important to make sure electronic copies are safe from hackers and hard drive crashes. I would suggest that you do not keep financial data in online storage, because there is a chance that it could be hacked.
I am planning to scan in all of my old paper files and shred them someday, but that takes a lot of effort and I am much to lazy to break the status quo.
So, what do you use for record keeping? What are you policies and strategies? Please share with all of us in the comments!
Just a note: This is my own personal advice based on what I found through my own research. I am not liable if you throw something away that you need and the IRS shows up at your door.
This is a re-visit to my old Intro To Investing post from October, 2008. If you like this post, be sure to read the old one that inspired it.
Imagine the life of Mr. Buffet. He lives like money is not really a concern, which it isn’t. He is frugal. He relaxes. He is happy.
Who am I describing? Who is the proverbial Mr. Buffet? It is two Mr. Buffets actually. Those are Warren and Jimmy.
Warren Buffet is the closest thing I have to a modern day hero. Buffet is smart and calculated and made a lot of money over the years. He is the world’s best investor. Warren Buffet took his “value investing” education to turn an investment in an old textile company called Berkshire Hathaway into one of the most famous holding companies in the world. With an insurance powerhouse and investment arm under its control, Berkshire Hathaway has produced consistent investor return for half a century.
When you picture paradise, you probably imagine clean beaches, tropical weather, and cold drinks. Chances are, Jimmy Buffet is there waiting for you. I imagine Jimmy’s life as the ultimate in relaxation. While sipping away in Margaritaville and enjoying the Cheeseburger in Paradise (hold the cheese on mine), Jimmy Buffet is the American symbol for relaxing. His ‘parrotheads’ often travel south, as inspired by his song “Changes in Lattitudes, Changes in Attitudes.”
So, while these icons appear to share little more than a last name, they represent something more to me. I have to remember to be serious and dedicated in my professional life, but I have to remember to head south every once in a while, or just relax regularly. Finding the balance between the Buffet’s is the key to my dream.
I hope to be able to combine those lifestyles more as time goes on. I want to remove the tether of my office and be able to work wherever I want and whenever I want. I hope to have the financial security to tell any boss how I really feel at any given time and not worry about the consequences. (I like my boss today, in case you were wondering)
I dream of a freedom from financial worry and a freedom to pickup and go. I want to enjoy paradise, and the ride to get there. That is my dream.
If you have any financial accounts anywhere, you have probably read about rolling over you old 401(k) retirement account to a new company that will “charge less” and help you “earn more.” While I am a big fan of moving an old retirement account when you leave an employer, it is important to take your time and make an educated decision.
First off, you have to look at where you account is today. How much do you have there? Is there a fee for the fund you have your money sitting in? Is there a maintenance fee? What is the total cost per year and cost as a percentage per year? At my employer, I pay less than 1% to keep my investment in a 2050 target date fund and an additional $5.75 per quarter in fees. I don’t mind the 1%, but the extra five bucks could go to better use.
If you are like me and don’t love the fees at your employer, remember to move things right away when you leave. It is worth keeping everything with the employer’s endorsed provider as long as you get a match on your contribution. If you have already left an employer and keep watching fees chipping away at your retirement, it is time to move on.
Reasons to stay with old employer:
Low fees/no fees (rare)
No extra work (lazy person’s excuse)
Reasons to move on:
High fees (likely)
Little control
No more contact with HR department where you used to work
Most often, the reasons to move outweigh the reasons to stay. If you are going to move, don’t just take the cash out and pay the tax penalty!!!! If you contributed to a retirement account, you got a big tax saving. Taking money out of a retirement fund early comes with hefty IRS penalties in the US, and I am sure similar penalties in Canada and other countries around the world (readers, please verify in the comments if you know). When you take out the funds, they have to go directly into a comparable retirement fund somewhere else or you have to pay up.
So, you are ready to move? Now it is time to research possible storage for your 401(k) in the future. Note that you can always move your 401(k) or IRA to another bank/broker, you are not limited to when you leave a job.
Googling 401(k) roll over gives you about 495,000 results and countless sponsored options. You see ads from places like TD Ameritrade, Charles Schwab, T. Rowe Price, Vanguard, Edward Jones, Sharebuilder/ING, E-Trade, and many more. You can use virtually any bank (not recommended) or brokerage (recommended). Here is a short list of my favorites:
1. Your Broker – You are probably there for a reason. If you are happy, explore retirement account options. You should be able to talk to an expert a sales person that can help you easily move your old account. Just be sure to ask about fees and investment options before you agree to anything.
2. Charles Schwab- Schwab is my broker, so it is a natural fit for me. I can invest for free in a whole slew of new index funds and there are no maintenance fees, so I have no reason to go elsewhere based on anything I have read.
3. Vanguard – One of the most popular firms with “low fee fund” options. Many other brokers offer access to invest in Vanguard funds as well.
4. Sharebuilder- If you are an investor bent on controlling the details and doing your own research, Sharebuilder offers low cost trades, so you can manage the account with fewer trading fees than other brokers. It is also easily funded through ING Direct (affiliate link).
Remember that these are just a few of the many options you have for investing your hard earned retirement funds. Just be sure to do your research on fees and investment options before you sign up. I would love to hear what you use in the comments.
I would like to take this opportunity to toot my own horn for a moment. I got a promotion and a raise! Yay! More money, more to do. Good times.
The question of what to do with a raise is often discussed in the personal finance world. People can save more, they can raise their standard of living, they can do some combination of the two. The answer for some is difficult. While we all know that we should keep living just like we are and save our raise, we are not always that good.
I am a big fan of the percent contribution method of dealing with a raise. If you make $40,000 per year and put 10% into retirement savings, you should stick with, at least, a 10% contribution if you get a raise to $45,000. That way, your retirement contributions increase with your raise. This is in contrast of putting in a fixed dollar amount, $4,000 per year at 10%, before and after the raise, because it would decrease to 8.8%.
Optimally, though, it might be even better to increase your contribution by a percent. If you can get by living comfortably at $36,000 per year after retirement contributions before the raise, you can certainly continue to do so after the raise. Why not split the difference? Increase your contribution by half of your raise if you can, or something higher that what you are doing now. It is easier to keep living the way you are today than to try to increase your contribution and adjust down later.
This time around, I am going to keep my retirement contributions the same by percentage, and will use the extra income to pay down student loans faster. Hopefully I can put my next raise 50% to a house purchase fund and 50% to retirement.
That’s just my two cents. What have you done with raises in the past? Do you just keep it, keep contribution percentage the same and keep the difference, or raise your contribution? Please say in the comments.
This time I was interviewed and featured in the story. For the first time ever, you can all see my last name. I was asked about parent’s investments for a story about the Dow breaking 10,000 on Denver’s Fox 31 News. See the video below. If you are reading this on RSS and can’t see the video, it is also available at Fox 31. My short part starts at about 1:57.
I guess I really am famous now. Two times on local news in a week is my personal record.
We have talked about automatic investments many times on this blog. I am a big fan of setting up a system that takes money straight out of your paycheck and puts it away for the day you call it quits. However, people often get nervous about investing their retirement savings. I have a couple of suggestions that you might enjoy.
There is a type of fund built specifically for you. I know, you probably think “nothing is done just for me.” If you plan to retire at any time in the future, there is a mutual fund just for you.
Most large investment companies offer what are often called target date or destination funds. Each fund is tailored specifically to the investment needs of someone with a retirement goal of 20xx. I am invested in a fund called “Destination 2050″ for people who will be 65 around 2050. There are Destination 2010, 2015, and so on where my 401(k) is stored.
The target date funds take out the guesswork in investing and asset allocation. As you age, the fund will be tailored for your risk profile. In your 20s, the funds invest almost exclusively in stocks. Later on, it moves toward fixed income (bond) securities and funds. As you near retirement, your investments are slowly moved into cash and treasuries, the safest, though lowest returning, investments.
I have a friend who was not putting money into her 401(k) because she didn’t know what fund to pick. The target date funds are “funds of funds.” The managers pick the funds for you to make it easy. If you are not sure what to put your 401(k) or IRA investments into, seriously look at funds like this. It is easier to have someone else pick stocks and mutual funds for you. At least I think so.
A British report demonstrated that only 21% of men and 32% of women earning less than 300 pounds ($488.04) per week are putting funds into a retirement account. On the other hand, people earning over 600 pounds ($976.08) per week are investing. 76% of men and 82% of women in that bracket are investing for retirement.
This study gives two interesting perspectives. First, and most obvious, people that earn more are doing more to save for their retirement. This leads me to wonder: are people saving more because they earn more or are they earning more because they are financially savvy? It is important to remember that correlation does not imply causation in statistical reports.
It is important to remember the “pay yourself first” philosophy if you are struggling to invest for your retirement. For example, most of us work at jobs that have 401(k) savings plans. Our companies give us the option to take money out of our earnings before they hit our bank account. Take full advantage of that, along with 100% of any company match, to ensure that you do not tempt yourself to spend the money that you should be saving for later in life.
Another striking statistic from this report is the number of females contributing to retirement plans compared to males. Maybe women really are just smarter than us? I don’t think so. This report showed that in the UK, where the study was conducted, women disproportionately worked in public sector jobs, and those (both men and women) in public sector jobs were more likely to contribute. Still, the girls are beating us on this one. Either way, everyone needs to do more.
What can you learn from this? The same thing you learn from this blog every day. It is no one’s fault that you do not save for retirement except your own. Do something about it. Setup your 401(k) or IRA today. Don’t say that you can’t afford it. Don’t say that it is too difficult. Take an hour and setup a system that will help you for the rest of your life.
I was on the phone a few days ago with a friend who just started a new job at a big computer company. This friend is a smart girl. She has a college degree. She knows she should be investing for retirement. In our conversation, it came out that she has not set up her 401(k) yet at her new employer. She has been there for a month! On top of that, the employer gives a 5% match for just setting it up. Like most people in their early 20s, my friend was making a mistake. If you are like she was last week, here is what you need to do to get started.
Read your employer 401(k) information. Almost any salary (non-hourly) job has some sort of 401(k) sponsored by the employer. Most big companies, and many small ones, will offer an automatic investment option where the money is taken directly from your paycheck. Learn all you can about your setup and what you need to do.
Go to the website or find the form you need to get started. Most of these forms ask for simply information like an employee ID number and, sometimes, a social security number.
Calculate your investment amount. If your employer offers a match, it is free money! Take full advantage. If you can get a 100% match up to 3%, put at least 3%. If you can get 100% match up to 5%, put at least 5%. Do not pass up free money, that would be stupid.
Pick your fund. This is the part where most people in their 20s give up. They think it is too complicated. Well, have no fear, I am here to help. Look through your fund options. Some employers have 2 or 3, some have 20 or 30. Almost all have a diversified mutual fund with a target retirement date. My employer calls them “destination funds” while some call them “life-cycle funds.” These are automatically allocated to a risk profile for people your age. I am in the “destination 2050″ fund for my 401(k).
Forget about it. Increase your contribution if you can over time.
The beauty of most 401(k) plans is that you do not have to think about it. You can set it up and forget about it. Over time, I have increased my contribution from 3% (to get my whole employer match) to about 7% today. Including 401k, Roth, stock purchase plan, and my Schwab investment account, I am now saving or investing about 15% of my paycheck. Over time, I want to increase it even more.
Don’t be intimidated by the sign up process. Giving up free money is stupid. You are not stupid. If you were, you would not be here. If you are already investing, look at increasing your percentage. If you are not, what are you waiting for? Start today!
I am curious what the readers think about something I am debating. I have a student loan at 6.8%. I am also thinking about buying a condo or house at some point. I will not buy for over a year, possibly two or three. However, it is something I want to do at some point to start building more assets. I can work to be debt free faster or save faster.
So, the question of the day: Should I pay off my student loan aggressively or should I put extra money into a down payment savings account? Please give you thoughts in the comments.
While most of the readers of this blog (I think) are in their twenties and thirties, this story is a valuable lesson on why we need to plan for the future. Remember the good old days when gas was under a dollar a gallon? Remember when we were kids and a candy bar was 25 cents, then 50 cents, then 75. I used to send thank you notes with a 28 cent stamp, now they are 42 cents and rising.
Seniors today may not have expected those dramatic changes in price. Look at how much has changed in the last twenty years, let alone seventy. The cost of living is on the rise, and there is no end in sight. That is what inflation is for the most part, a rise in the cost of living.
Fortunately for us working age types, our pay increases every year at the rate of inflation, or a little more if we are lucky. Our cost of living pay increase helps us to cover that extra four cents for a stamp or increase in grocery prices. When you are in retirement, you do not get a raise anymore.
When you plan out what you need to have in the bank to retire, remember that costs are going to go up. Food, travel, gas, clothes, and entertainment are going to cost you more the day you retire than they do today and will cost even more ten and twenty years after you retire. Don’t forget that you will be spending more time at the doctor when you are nearing 80 than you do today.
While we are still working, we can make an adjustment on how we live to ensure we can cover our costs, be they needs or wants, once we stop working. Today you can increase your 401(k) or IRA contribution. Plan for the future so when it comes around you don’t have to worry.
For now, many seniors are stuck in a bad situation. Costs have gone up and they have little opportunity to make up the gap. This has impacted the lifestyle of many retirees and their families. Remind your parents to think about this so you don’t get stuck with the bill later on in life.
What can you do today? Increase what you put into your 401(k) by 2%. After a few months I am sure you won’t miss it.
I have a file cabinet at home with bank statements dating back to when I opened my first checking account when I was sixteen years old. Nine years later, I wondered if I still need those bank statements. I also have every tax return I have filed, ever. Do I need those? I did some digging, and I found a great resource. Here is the synopsis:
