#1: Tax-deductible contributions. These accounts are funded with pre-tax income. Your annual contribution limit to an HSA depends on your age and the type of insurance plan you have in conjunction with the account. For 2010, the limit is set at $3,050 (individual plan) and $6,150 (family plan). If you are older than 55, those limits are nudged $1,000 higher.

#2: Tax-free growth. The money in an HSA grows untaxed – and some HSAs even have investment options, including mutual funds. Some HSA owners choose to invest the assets in money market funds, but they are commonly held as cash.

#3: Tax-free withdrawals (as long as withdrawals pay for heath care costs). To make withdrawals even easier, many HSAs offer you checkbooks and debit cards to make it easier to pay healthcare expenses and reimburse yourself. There is no need to provide reimbursement claims to the IRS; all you need to do is keep your receipts in case of an audit.

Add it up: an HSA lets you avoid taxes as you pay for health care. Additionally, these accounts have other merits.

You own your HSA. If you leave the company you work for, your HSA goes with you – your dollars aren’t lost.

No use-it-or-lose-it rule. This is an improvement from a Flexible Spending Account (FSA). If you don’t use the money in an FSA at the end of a year, you lose it. With an HSA, there is no such penalty. For the record, you can’t have both an HSA and an FSA.

Hidden social advantages? Since HSAs impel people to spend their own dollars on health care, the theory goes that they spur their owners toward staying healthy and getting the best medical care for their money.

How about the downside? Well, HSA funds don’t pay for all forms of health care. For example, you can’t pay for over-the-counter drugs with HSA assets.³ In the worst-case scenario, you get sick while you’re enrolled in a high-deductible health plan and lack enough money to pay medical expenses.

If you use funds from your HSA for non-medical expenses, the federal government will hit you with a withdrawal penalty – 10% in 2010, going north to 20% in 2011. And in case you might be wondering, some HSAs do assess monthly fees and transactional charges to account owners.

Even with those caveats, younger and healthier workers see many tax perks and pluses in the HSA.

Who is eligible to open up an HSA? You are eligible if you enroll in a health plan with a sufficiently high deductible. For 2010, the eligibility limits are a $1,200 annual deductible for an individual or a $2,400 annual deductible for a family. You aren’t eligible if you are enrolled in Medicare or if someone else claims you as a dependent on their federal return.

You don’t need an employer-sponsored health plan to have an HSA. You can open one with a personal health plan, too. In June 2010, the American Medical Association’s American Medical News reported that HSA enrollment had reached the 10 million mark, growing by 2 million alone during 2009.

As health insurance costs are repeatedly increasing for businesses, and as health plans with higher deductibles generally cost less for a company compared to traditional coverage, you will likely see the population of HSA owners growing in the 2010s.

The stock market is amazingly

2008-2009. The collapse of the subprime mortgage markets triggered a recession and made 2008 the worst year for stocks since 1931. The Dow Jones Industrial Average fell 10% in June 2008 and fell 10% again in October 2008, losing 19.12% for the year. On March 9, 2009, the major U.S. indices closed at 12-year lows with the S&P 500 at 676.53. Then the market took off. From March 9, 2009 to the end of 2009, the S&P 500 soared 64.83% while the NASDAQ gained 78.87% and the Dow gained 59.28%.

2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points to 8,920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain! The Dow closed 2001 at 10,021 – a 21% rebound in less than three months. There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days. As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.

1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss. Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year^. By January 1990, the DJIA was at 2,800. If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.

1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.

So while the markets have been through some rough periods, it is important to note that panicking is not the answer!

If you want to save for college, you may wish to consider an UGMA or UTMA account. These custodial accounts are typically created by parents and other relatives who want to gift minors without having to set up a trust.  Many parents and grandparents create UGMA or UTMA accounts as college savings vehicles. You can invest for a child’s education while transferring income-producing assets to that child (and their presumably lower tax bracket).

The Uniform Gifts to Minors Act (UGMA) allows a child or teenager to take ownership of cash, securities or insurance policies. The successive Uniform Transfers to Minors Act (UTMA) extended the UGMA parameters: it lets minors receive gifts of art, real estate, patents and royalties, and other non-securities assets.

UGMA and UTMA accounts address a minor concern. You may be thinking, “Well, I know outright gifts to a minor aren’t subject to federal tax, so why set up an UGMA or UTMA? Why don’t I just gift the money or securities outright?”

Do you really want to do that?
Let’s face it, you probably want control. Most likely you don’t want your teenager buying and selling securities any more than brokerages do. You might also want to be certain that the cash you gift is not spent frivolously. If these concerns speak to you, UGMA and UTMA accounts may be worth a look.

In 2010, you can use these accounts to gift up to $13,000 in money or property to a minor. In fact, you can gift up to $13,000 each to multiple minors. If you stay under the annual federal gift tax exclusion amount each year, you will only trigger federal gift tax if you transfer more than $1 million during your lifetime.

You are the custodian; the minor is the owner. In colloquial terms, these UGMA or UTMA accounts are “trust funds” – yet they are not trusts that would require the involvement (or fees) of an attorney. While the minor owns the cash or property within the UGMA or UTMA account as soon as the asset transfer occurs, the custodian manages that cash or property until the child reaches the age of maturity (18 or 21 in all but a few cases).

As custodian, you are not the only one who can make irrevocable transfers of cash or property into the account; parents, grandparents, relatives and friends may all do so. A sizable college fund may be built with an UGMA or UTMA account, whether the assets are held in cash or invested. When the account owner reaches “maturity”, he or she may spend that money for college.

Is there a potential downside of UGMA or UTMA accounts?
Yes. To repeat, you are the custodian, the minor is the owner. When that minor becomes an adult under state law, the account terminates and the account owner gets to spend the funds as he or she wishes. It’s a free country … and it is possible that today’s college fund will become tomorrow’s Corvette. So you do want the owner and the custodian on the “same page” when it comes to the intent of the account, and on good terms as well.

Another potential issue to consider: if you are custodian of one of these accounts and you pass away before the account terminates, the assets within the UGMA or UTMA account may become part of your taxable estate.

An underpublicized option worth checking out. UGMA and UTMA accounts may give your family the potential to create a nice pool of money for college while lowering your income taxes in the process.

The lyrics are moving:
“I wasted the rescue,
abandoned the mission.
I’ve failed by my own hand
and watched it all go wrong

You said you could save me
that I couldn’t save myself
You said that you loved me
no matter what I’ve done

When the light is gone
and life is just a day we take
Still the fight goes on
to give my heart away

And It’s out of my hands
It was from the start
In light of what you’ve done for me”

How many times do we get in the way of God’s work in our lives? We try to take control when He is in control of everything.

He can save that marriage…

He can help you get that job you need…

He can cure you from that awful disease…

He can solve your addictions

On and on…

The truth is we cannot do it alone.  Your finances included.  It takes accountability: to Him, to yourself, to your spouse, to an accountability partner.  Don’t do your finances alone!   Get the help you need…

Let me know if I can help offer you a professional opinion.

Are you heading in the right direction?

Are you off course and need some guidance?

Proverbs 19:20-21

Listen to counsel and receive instruction,
That you may be wise in your latter days.
There are many plans in a man’s heart,
Nevertheless the LORD’s counsel—that will stand.

Jeremiah 29:11
For I know the plans I have for you,’ declares the LORD, ‘plans to prosper you and not to harm you, plans to give you hope and a future.

A man prays to God, “God, what is a million years to you?” God replies, “To me, it‘s like a second” The man then asks, “Well, How much is a million dollars to you?” to which God replies, “it is like a penny.” Thinking he could outsmart God, the Man prays for a penny. God says, “Sure, just wait a second”.

Our perspective of money determines what it means to us. In a day and age where divorce is as trendy as the iPad, it isn’t exactly earth shattering when we learn that most marriages are a result of financial problems. Money can be a blessing or a curse depending on where you are in your relationship with money. Money is a necessary for day to day living, but when the relationship is abused, it can become a great source of evil. When I speak about marital problems, it does not mean that money is always the root problem. It is often merely a symptom of deeper underlying issues that may be unconscious and unspoken.

If you are prepared to handle money, more of it will lead to more money. Why do you think that most lottery winners end up broker or back where they started before the won the lottery no matter how much they won? They were not prepared for the responsibility and made the same mistakes they were currently making only multiplied the mistakes because they had more money.

When you look at a person‘s views on money, it impacts many other areas of their life: how they view God, their spouse, their children, their other relationships, and even their career. The motives behind why someone wants money become a root question.  What does money mean to you?  I’d love to hear your thoughts on why money is or isn’t important to you…

As you begin your life together, it’s important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list …

Step one: Manage debt. Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be seen as “his debt” or “her debt”. Arguments may start because “your debt” is hurting “us”.

Debt management should be a priority for any newly married couple. There are good debts which we assume on the way to a positive result (such as a mortgage), but there are also bad ones we assume through our credit cards and other channels.

Step two: Live within your means. An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift, and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.

Step three: Save for college. If you plan to raise children, it’s never too soon to start. You can do it a little at a time, a little per month. You can open a college savings account using different investment vehicles – stocks, funds, or investments with lower risks. 529 plans in particular offer you some fine tax breaks.

Step four: Insure yourself. If you are under 40, you may not have any kind of disability or life insurance. You may feel you don’t need it yet. However, getting a policy early can be cost-efficient: if you buy a term life policy (or even a permanent life policy) when you are young and healthy, chances are you will pay less expensive premiums than people in their 40s and 50s who may be obese, diabetic, heavy smokers or drinkers.

Step five: Communicate to avoid surprises. No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time”. That’s great, but that’s probably not the best approach when it comes to your shared financial life. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship.)

Step six: Build an emergency fund. You’ve probably watched or read a number of stories about couples who were hit hard by the downturn – nice, once-affluent people who suddenly had to live in their car or a motel. When things got rough, many had no emergency fund to sustain them and ended up homeless. Consider building up a cash reserve (gradually, if necessary) that you could tap into should something go wrong. You won’t regret having it around.

Step seven: Plan for retirement. There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may all need to become millionaires.

Consider this: according to current Social Security Administration projections, the average 63-year-old in 2010 is projected to live until age 84.  So today’s typical retiree is looking at a retirement of approximately 20 years. Some of these people will live past 100 – many more than in previous generations.

Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might become commonplace for the members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement in which you don’t outlive your money.  This (strong) possibility means you may want to make saving for retirement NOW a higher priority.

In a typical couple, one spouse is more risk-averse than the other (sometimes dramatically so). So you need to agree on the investment approach you take, preferably with the help of a financial consultant who can help you determine how much money you might need for certain life goals or financial objectives.

I just read Good Returns by George Schwartz, President & CEO of Schwartz Investment Counsel, a registered investment advisory firm for endowment funds, foundations, and mutual funds (Ave Maria Funds).  Faith-based investing has been my passion for years so I was really excited to dive in and see George’s perspective.

In Good Returns, George lays out in great detail the methodology to produce excellent investment results without supporting companies that oppose your values.  One of the great distinctions that George makes is the difference between socially and morally responsible investing.  Many faith-based investors confuse these two forms of investing.  Many end up investing in a socially responsible fund when in reality they really wanted a morally responsible fund.

George wonderfully describes these differences:

“Socially Responsible Investment” funds tend to focus on the issues of the politically liberal lobby—screening out companies believed to be environmentally harmful, defense contractors, producers of alcohol, tobacco, and firearms, etc., and screening in companies that provide low-cost housing, promote gender equity and gay rights, etc. These designations are very broad and loosely defined.

“Morally Responsible Investing,” on the other hand, is a very specific approach to religiously based investing—one that is motivated by faith and is guided by a particular set of ethical precepts. It focuses specifically on making investment decisions that embrace key areas of human concern. Just because an investment plan has a religious flavor or touts a church connection, you shouldn’t assume that it is markedly different from the general run of “socially responsible” offerings. For the morally responsible investor, overshadowing every other consideration is the sanctity of life. This means screening out companies that make abortion-related drugs, publicly traded hospitals that perform abortions, companies involved in embryonic stem cell research, and companies that contribute to Planned Parenthood. The next consideration beyond the sanctity of life is the inviolability of marriage. Morally responsible investors screen out companies involved in the production and distribution of pornography. This includes most Hollywood studios and entertainment media and several publishers.”

Money & Morality

The book starts out with a discussion on money and morality with a scriptural foundation on why faith is so important in our finances. God knows what we view as most important in our lives.  His Word says, “For where your treasure is, there your heart will be also.” (Matthew 6:21).  Our money: bank accounts, investments, retirement accounts, etc is where many of us place our treasure.  Yet, only select few, examine where their “treasure” is being invested.  Do we as the Body of Christ want to be profiting from companies involved in abortion, pornography, gambling, tobacco, alcohol, embryonic stem cell research, homosexual activism, and entertainment that mocks Christian values to name a few?

George lays out his background and how he got started in the area of morally responsible investing (MRI).  Once a critic of MRI, he quickly became one of the strongest advocates of this method of investing, after a business meeting with Tom Monaghan, at the headquarters of Ave Maria Funds.  Tom, in case you weren’t aware, is an entrepreneur and conservative Catholic philanthropist and activist who founded Domino’s Pizza in 1960.  After this meeting, George was convinced that as a Catholic, investing in a morally responsible manner was not only what he desired to accomplish, he also felt an obligation to positively impact corporate America.  If he could get companies to stop funding and supporting abortion, how much of an impact could like-minded investors have?

Over the course of the next several chapters George depicts the history and accomplishments of the Ave Maria funds.  This includes background on his life as well as those around him which helped grow the organization to where it is today – with over 25,000 shareholders! There is also much discussion on how he selects investments, using a very similar approach to what we use at Faith-Based Investor.  When you look for companies that are morally and financially sound and trading at a discount to book value, it truly is a winning formula!

Throughout Good Returns, George strikes up a good balance of practical investment advice, scriptural references, political discussions (for example comparing Reagan and Obama), and how to build a solid portfolio.  Overall, I highly recommend this book.  It is a good read and offers a unique and refreshing look at investing.  It also brings in a much needed discussion of how we measure investment success: not only should we care about the amount of profit, we should equally care about the source of the profit! As we have seen with the performance of Schwartz’s track record, you can have BOTH morally sound investments and Good Returns!

With unemployment running rampant, housing prices still dropping, and consumers not spending, it is no secret that our economy is still in deep trouble.  Yet with adversity comes great opportunity! Frugality is en vogue!   Let’s look at some ways you can save money…

Visa released a study showing U.S. consumers cannot account for approximately $21 per week in cash spending.  This is over $1,000 per year. Those between the ages of 18 to 24 fare even worse – losing track of $2,500 annually.  That is a lot of cash!  Not only do many of us lose track of spending, we pay far too much for items because we fail to do a “little research”.  That is why I wanted to provide you with some online resources and tips to help save you money.  With budgets being reigned in, how can you minimize some of your ongoing expenses?  It pays to comparison shop more effectively. Here are ten tips to help you shop better and save more!

1. Get reviews before you spend

ConsumerSearch: This consumer-friendly site features product reviews from multiple sources and rates the reviews on a variety of criteria, including credibility, timeliness, and qualifications of the reviewer.

Wize: Here you will find millions of reviews of millions of consumer products. You can search for products based on specific product names and your needs. Wize aggregates reviews from sites such as Amazon, Wal-Mart, and CNET and reports the results as either a “Wize Choice” or an “Unwize Choice.”

Epinions: This site features product reviews by consumers who have bought and used the products. The site has advisors who are in charge of different categories, and top reviewers, whose opinions are valued by the category advisors. Users also rate reviewers based on the usefulness and completeness of the reviews.

ConsumerReview: This site offers very comprehensive reviews, buying guides, and discussion forums on electronics, computers, golf, cars, food and wine, office equipment, and more.

2. Use a price comparison website

Become: This site combines price comparisons and news about specific products you’re researching, updated every 10 minutes. You can see your results displayed in two ways: a list that shows fewer products and more information, or a grid that shows more products with less information. Price information includes shipping charges and taxes and allows you to search nearby retailers.

FatWallet: This is a hybrid site that offers price comparisons, coupons, and busy, busy forums where community members discuss hot deals, maximizing rewards, and even financial services information like who’s offering the best checking account, deals on credit cards, and insurance products.

Bizrate: Here you will find price comparisons on thousands of products. You can narrow the search by price, brand, store, or type, and compare products to each other. The site features a store-rating guide that evaluates hundreds of stores based on ease of ordering, price, on-time delivery, and whether the product met expectations.

PriceGrabber.com: This site covers products from tech to appliances to jewelry to clothing. Each seller is rated via thousands of consumer reviews and listings include links to pictures, discounts, ratings, and the bottom-line price.

StreetPrices: When you know exactly what you’re looking for in the electronics arena, StreetPrices will show you the best prices and e-mail you when the price drops below the lowest amount. You can also store notes about individual products. Stores are not rated, but an info link provides detailed information about each store, such as how long it’s been in business, return policy, whether it’s a member of the Better Business Bureau, and the toll-free customer service number.

3. Join a private shopping club

Gilt Groupe: This high-end fashion website operates seven days a week offering designer fashion, jewelry, vacations, and home decor at significant discounts. It’s also turned into a million-dollar business model that is the envy of the fashion industry and enticing Wall Street.

One Kings Lane: This club features top home decor brands at significant discounts.

Ideeli: This site offers the gamut of luxury goods for children, men, and women, including accessories and beauty products.

Totsy: Moms will love the deals on clothing, bedding, bath, educational materials, and more for kids.

4. Use a prescription drug savings program

PharmacyChecker.com: PharmacyChecker.com was founded by a medical doctor in 2003 to help consumers safely save money on medication. It independently checks the credentials of online pharmacies and lets you easily compare drug prices. Its online pharmacy verification program is the largest and most accepted — referenced by AARP Magazine, Smart Money, and Consumer Reports.

DestinationRx:  This site provides free, easy-to-use tools to help you securely manage and make decisions about prescription purchases for you and your family.

Pharmacy Reviewer: Pharmacy Reviewer provides free worldwide prescription drug price comparison and online pharmacy reviews.

Medicine Coach: My good friend West Connor gives away a ton of valuable information. As a pharmacist, West provides great “inside tips” on how to save money on prescriptions.

5.      Save before you travel

Kayak: Compare hundreds of travel sites at once.

Bing travel: Bing travel helps you Know When To Buy™, When To Fly™, and Where To Stay™  – all based on a huge volume of airfare and hotel rate data that they process every day. Their airfare predictions and hotel Rate Indicators are available from most major U.S. and Canadian cities to destinations worldwide. Use their smart travel search to easily compare, sort, and narrow flight and hotel results from hundreds of websites.

Home Exchange:Home Exchange is a vacation alternative where you stay in someone’s house and they stay in yours. Simply click on a country or state where you want to go, select an interesting listing, and then send a privacy protected email to that listing directly from the site. You can also list your own home and get inquiries from around the world.

Cruisedirectonline.com: Search hundreds of pages of helpful information, get cruise reviews, get deck plans, photos, tools and prices for hundreds of great discount cruises and cruise deals.

BeatAnyCruisePrice.com:  Search for cruises and find the lowest prices around.  They have had their “Beat Any Cruise Price guarantee” since 1999

6. Save on insurance coverage

Insure.com: Compare prices on most insurances – life, disability, home, auto, health care, and long-term care insurance.

EHealthInsurance: eHealthInsurance.com is the largest online resource for health insurance.

7.      Reduce your interest charges on your home loan and credit cards

Bankrate: Shop around for the best rates on credit cards, home mortgages, loans, CDs, and more.

CardRatings.com: A great site for credit card resources, comparisons, and consumer advocate resources.

CreditCards.com:  Search for credit cards that offer cash back or rebate incentives. A Cash Back Credit Card rewards you for using them with cash back incentives and rebate programs. Keep in mind, credit cards with cash rebates and incentives usually require a good to excellent credit rating for approval.

8.      Maximize those tax deductions and/or buy used items

The Salvation Army lists the value of clothing, appliance, car, furniture, and household goods donations for tax purposes.  They also offer used clothing to help you save money.

Goodwill also offers a guide to resale values of items ranging from clothing to home appliances to electronics.  Another place to get used items at significantly reduced prices.

9. Clip those coupons

Here are several coupon and promotional code sites

www.couponshouse.com

www.fabuloussavings.com

www.alexscoupons.com

www.redplum.com

www.coupons.com

www.flamingoworld.com

www.couponcabin.com

www.couponmom.com

www.couponmountain.com

www.thecouponclippers.com

www.savingsmania.com

deals.yahoo.com/coupons/

www.retailmenot.com

www.couponchief.com

www.dealcatcher.com

www.swapbabygoods.com

www.momsview.com

www.clevermoms.com

www.freeshipping.org

10. Be a better shopper for food and household items

In addition to using coupons, it also makes financial sense to:

• Stockpile large amounts of nonperishable groceries and toiletries when they go on sale
• Most people don’t realize but you can save huge on groceries and household supplies by shopping by shopping at drugstores like Walgreens, CVS or RiteAid Pharmacies. These stores provide incentives to get you in their doors.  Sometimes by combining in store savings and coupons you can get items for free, yes FREE!
• Cook more at home. You can save significant money — and improve the quality and nutritional value of your food –by cooking from scratch rather than buying “stuff from a box” or a restaurant.
• Plan your meals ahead.  Look at the local grocery flyers to see “weekly specials”. Make a meal menu based on what’s on sale.

You might be surprised how many people have financial documents scattered all over the house – on the kitchen table, underneath old newspapers, in the hall closet, in the basement. If this describes your financial “filing system”, you may have a tough time keeping tabs on your financial life.

If you’ve got a meeting scheduled with an accountant, financial consultant, mortgage lender or insurance agent, spare yourself a last-minute scavenger hunt. Take an hour or two to put things in good order. If nothing else, do it for your heirs. When you pass, they will be contending with emotions and won’t want to search through your house for this or that piece of paper.

One large file cabinet may suffice. You might prefer a few storage boxes, or stackable units sold at your local big-box retailer. Whatever you choose, here is what should go inside:

1. Investment statements: Organize them by type: IRA statements, 401(k) statements, mutual fund statements. The annual statements are the ones that really matter; you may decide to forego filing the quarterlies or monthlies.
When it comes to your IRA or 401(k), is it wise to retain your Form 8606s (which report nondeductible contributions to traditional IRAs), your Form 5498s (the “Fair Market Value Information” statements that your IRA custodian sends you each May), and your Form 1099-Rs (which report IRA income distributions).

In addition, you will want to retain any record of your original investment in a fund or a stock. (This will help you determine capital gains or losses. Your annual statement will show you the dividend or capital gains distribution.)
Bank statements. If you have any fear of being audited, keep the last three years worth of them on file. You may question whether the paper trail has to be that long, but under certain circumstances (lawsuit, divorce, past debts) it may be wise to keep more than three years of statemetns on file.

2. Credit card statements: These are less necessary to have around than many people think, but you might want to keep any statements detailing tax-related purchases for up to seven years.
Mortgage documents, mortgage statements and HELOC statements. As a rule, keep mortgage statements for the ownership period of the property plus seven years. As for your mortgage documents, you may wish to keep them for the ownership period of the property plus ten years (though your county recorder’s office likely has copies).

3. Your annual Social Security benefits statement: Keep the most recent one, as it shows your earnings record from the day you started working. Please note, however: if you see an error, you will want to have your W-2 or tax return for the particular year on hand to help Social Security correct it.

4. Federal and state tax returns: The IRS wants you to hang onto your returns until the period of limitations runs out – that is, the time frame in which you can claim a credit or refund. The standard IRS audit looks at your past three years of federal tax records. So you need to keep three years of federal (and state) tax records on hand, and up to seven years to be really safe. Tax records pertaining to real property or “real assets” should be kept for as long as you own the asset (and for at least seven years after you sell, exchange or liquidate it).

5. Payroll statements: What if you own a business or are self-employed? Retain your payroll statements for seven years or longer, just in case the IRS comes knocking.
Employee benefits statements. Does your company issue these to you annually or quarterly? Keep at least the most recent year-end statement on file.

6. Insurance policies: Life, disability, health, auto, home … you want the policies on file, and you want policy information on hand for the life of the policy plus three years.

7. Medical records and health insurance: The consensus says you should keep these documents around for five years after the surgery or the end of treatment. If you think you can claim medical expenses on your federal return, keep them for seven years.
Warranties. You only need them until they expire. When they expire, toss them.

8. Utility bills: Do you need to keep these around for more than a month? No, you really don’t. Check last month’s statement against this month’s, then get rid of last month’s bill.

If this seems like too much paper to file, buy a sheet-fed scanner. If you want to get really sophisticated, you can buy one of these and use it to put financial records on your computer. You might want to have the hard copies on file just in case your hard drive and/or your flash drive go awry.