However simple or elaborate your record keeping system turns out to be, you should make at least two divisions in your files: active and inactive. Following are some items that should go in each.

Active file (things you may need immediately)

• Unpaid bills.

• All paid bills for the past year. They should be marked with date of payment, check number, or the notation "paid in cash." If paid in cash, have the person who received the money mark the bill "paid" with the date and their signature, or get a receipt and staple it to the bill.

• Bank checking account statements from the previous 12 months, which should have been balanced with your checkbook.

• Canceled checks for the past year.

• Savings account statements from banks, savings and loans, or other financial institutions for the past year.

• Credit card statements for the last year. Note each item that is a major purchase, a tax deductible item, or a home improvement expense.

• A list of credit cards, their numbers, and how to report loss or theft.

• Current family health records.

• A copy of the inventory of your home's contents.

• Keys to your safe deposit box and a list of the items in the box. This should be a running record of items you put in and take out.

• Insurance policies, with a record of dates and amounts of premiums paid.

• Warranties and operating instructions for appliances.

• Employment records, such as letters of recommendation, letters of awards or achievements, résumés, and benefit information.

• Record of where your important papers are located.

• Current income tax working papers. Include a page to record items to remember at income tax time and special expense and receipt forms to use or take to your income tax preparer. Keep the past three years' tax records and information in this file and move records for previous years into your inactive file.

• Estimated income tax returns and payment records for the past three years.

• Retirement investment information, rules, and regulations on Social Security, IRAs, and other annuities.

• A copy of your will and your spouse's will.

• A copy of the letter of instruction to the executor(s) of your will and your spouse's will.

Inactive file (things you may need in the future)

• Bank statements for the past three years.

• Credit card statements listing home improvement expenses.

• Property improvement records such as canceled checks, credit card receipts, cash register receipts, and paid bill vouchers for improvements that have added to the value of your property.

• Copies of income tax returns and supporting documents that are four or more years old.

• Copies of legal papers pertaining to formerly owned properties.

• Reports from trusts.

• Copies of records of the family corporation or other corporations and partnerships in which you are involved, articles of incorporation, annual meeting minutes, and other documents relating to the corporation.

• Copies of marriage, birth, and death certificates, or divorce decrees, including child custody support information.

• Educational records, such as transcripts and diplomas.

Keep canceled checks, receipts, and bills marked paid for major purchases of furniture, appliances, equipment and valuable possessions as long as you own the item. You'll have information if you sell or trade it or if the IRS or your insurance company questions its value or authenticity.

Keep bills, canceled checks, receipts, contracts, and any other documentation of home and property improvement as long as you own the property. This information will be needed to adjust the income tax basis thus reducing capital gains tax at the time of sale.

Keep copies of federal and state income tax returns as long as you live if they contain IRA, home purchase/sale information. They should also be kept through the period of probate or until your estate is settled. Otherwise keep tax returns for six years.

Keep warranty, sales slips, instruction booklets, telephone numbers, and addresses of service centers for each major appliance or piece of farm or business equipment as long as you own the item. Also keep a list of serial numbers of expensive items.

Keep receipts or canceled checks for small purchases for one year in case of a dispute with the store or company.

Keep insurance policies as long as they are in force. Life insurance policies should be kept for the lifetime of the insured, until the claim is paid after death, and for the period of probate after death.

Keep medical bills, receipts, and papers, whether paid by you, your insurance company, or Medicare or Medicaid. Include the date and kind of service, cost, and the amount paid for each visit to the doctor, clinic, or hospital; the date your claim was submitted to the insurance company; a photocopy of the papers; the date you received the settlement; and the amount received. Keep until the insurance claim is paid to your satisfaction. If both Medicare and a supplemental insurance are involved, keep for one year to check the total deductible. These records will also be needed for income tax purposes if you claim medical expenses as a deduction.

Keep health records (blood type, allergies, dates and the nature of all illnesses and injuries, names of doctors consulted, records of hospital and clinic stays, medications prescribed and taken, and dates and types of X-rays and shots) as long as you live.

Keep legal records (copies of birth certificates, marriage licenses, current passports, prenuptial and postnuptial agreements, death certificates, custody papers, and deeds) as long as you live. The originals of these documents should be kept in a safe deposit box. Documents about deceased relatives may be useful for genealogical information. Copies of recorded deeds should be retained by the heirs of the property.