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Managing financial records: Should they stay, or should they go? p2

We are talking about some ways to manage your financial records. For the most part, we are talking about paper. When it comes to electronic records, the duration advice is the same -- six years for tax returns and supporting documentation, for example -- but the location may be different. Cyber security experts waver between saving files to a flash drive (or external hard drive) and moving files to the cloud. The verdict isn't really in yet.

There is always the option of printing things out, too. In that case, you may want to keep our suggestions in this and our last post in mind.

Monthly statements and bills. You may need quick access to bank statements, investment account statements, utility and credit card bills and the like, so store them somewhere close at hand. The top drawer of a filing cabinet or an accordion file tucked next to your home computer are simple, easy-to remember options.

When you have checked the statements for accuracy or when you have received the annual summary, you can toss the monthly or quarterly financial statements. With bills, once they are paid or once any dispute is cleared up, toss them as well.

Difficult-to-replace documents. Birth certificates and adoption records, marriage licenses and divorce decrees, passports or naturalization records -- anything that is a hassle to replace if lost belongs in a safe deposit box or a fire-resistant safe in your home. Keep photocopies in a separate safe place, and keep a list of everything separate from the originals and the copies.

Pay stubs. Just a suggestion: You may want to hold onto your pay stubs -- paper or electronic -- during the year to check against your W-2.

Shred. We were talking with friends about the best birthday presents we had ever received. Without hesitation, a friend answered, "a cross-cut shredder." Shred anything that has your Social Security number on it, a bank account number, credit card number -- anything that could support identity theft.

Just a few minutes and some small investments should have you prepared for every contingency, even for an audit.

Source: CBS Money Watch, "How to defend yourself during a tax audit," Anne Dullaghan, Jan. 19, 2015

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