personal finance

Organizing your financial records is a cyclical process rather than a one-time event. You’ll need to set up a system that helps you organize incoming documents and maintain existing files so that you can easily find what you need.

Here are a few tips.

Create your system

Where you should keep your records and documents depends on how quickly you want to be able to access them, how long you plan to keep them, and the number and type of records you have. A simple set of labeled folders in a file cabinet may be fine, but electronic storage is another option for certain records if space is tight or if you generally choose to receive and view records online. No matter which storage option(s) you choose, try to keep your records in a central location.

File away

If you receive financial statements through the mail, set up a collection point such as a folder or a basket. Open and read what you receive, and decide whether you can file it or discard it. If you receive statements electronically, pay attention to any notifications you receive. Once you get in a routine, you may find that keeping your records organized takes only a few minutes each week.

Purge routinely

Keeping your financial records in order can be even more challenging than organizing them in the first place. Let the phrase “out with the old, in with the new” be your guide. For example, when you get this year’s auto policy, discard last year’s. When you receive an annual investment statement, discard the monthly or quarterly statements you’ve been keeping. It’s a good idea to do a sweep of your files at least once a year to keep your filing system on track (doing this at the same time each year may be helpful).

Think safety

Don’t just throw hard copies of financial paperwork in the trash. To protect sensitive information, invest in a good quality shredder and destroy any document that contains account numbers, Social Security numbers, or other personal information. If you’re storing your records online, make sure your data is encrypted. Use strong passwords, and back up any records that you store on your computer.

There’s a fine line between keeping financial records for a reasonable period of time and becoming a pack rat. A general rule of thumb is to keep financial records only as long as necessary.

For example, you may want to keep ATM receipts only temporarily, until you’ve reconciled them with your bank statement. But if a document provides legal support and/or is hard to replace, you’ll want to keep it for a longer period or even indefinitely. It’s ultimately up to you to determine which records you should keep on hand and for how long, but here’s a suggested timetable for some common documents.

*The IRS requires taxpayers to keep records that support income, deductions, and credits shown on their income tax returns until the period of limitations for that return runs out–generally three to seven years, depending on the circumstances. Visit irs.gov or consult your tax professional for information related to your specific situation.

In December 2015, the Federal Open Market Committee (FOMC) raised the federal funds target rate to a range of 0.25% to 0.50%, the first shift from the rock-bottom 0% to 0.25% level where it had remained since December 2008.

The federal funds rate is the interest rate at which banks lend funds to each other from their deposits at the Federal Reserve, usually overnight, in order to meet reserve requirements. The Fed also raised a number of other rates related to funds moving between Federal Reserve banks and other banks. The Fed does not directly control consumer savings or credit rates, but the federal funds rate serves as a benchmark for many short-term rates, such as savings accounts, money market accounts, and short-term bonds.

The prime rate, which commercial banks charge their best customers, is typically about 3% above the federal funds rate. Other forms of business and consumer credit–such as small-business loans, adjustable-rate mortgages, auto loans, and credit cards–are often directly linked to the prime rate. Actual rates can vary widely. Fixed-rate home mortgages and other long-term loans are generally not linked directly to the prime rate, but may be indirectly affected by it

The FOMC expects economic conditions to “warrant only gradual increases” in the federal funds rate. Most Committee members projected a target range between 0.75% and 1.75% by the end of 2016, so you can probably expect a series of small increases this year. Although rising interest rates make it more expensive for consumers to borrow, higher rates could be good for retirees and savers who seek current income from bank accounts, CDs, bonds, and other fixed-interest investments.

The FDIC insures CDs and bank savings accounts, which generally provide a fixed rate of return, up to $250,000 per depositor, per insured institution. The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

Source: Federal Reserve, 2015

Although the prime rate has been closely aligned to the federal funds rate over the past 20 years, rates on conventional 30-year fixed mortgages have followed a more independent trajectory, generally trending downward over the period.

Source: Federal Reserve, 2016