Journey to Paperless: Receipts

Do you hoard receipts?  Are you not sure what to do with them, or how long to keep them and how to store them?  Many people hold on to their receipts "just in case."  This could be just in case of needing to return an item to a store, being audited by the IRS, or providing proof of purchase for a warranty.  Whatever the reason, ask yourself, "If this 'just in case' scenario came up, would I be able to find the receipt I need?"  If you answered "no," then your piles of receipts aren't serving a purpose and it's time to reconsider how many you keep and how you keep them.

My Process Before Digitizing

For years, I had been storing my receipts in a 13 section folder.  The first 12 sections were for each month, and the last section was for important receipts or deposited checks.  At the beginning of the following year, I would review all my receipts and separate out some receipts into subcategories, such as "medical," "car," or "work."  After the sort, I put all my receipts for the year into a large, date-labeled folder and store it away.  

This process worked for me for years, and I was always able to find the receipts I needed for making a return at a store or filing my taxes.  It wasn't until I started running out of physical space to store the accumulated receipts that I decided to make a change.  Many of the receipts were insignificant and the ink had faded and I knew I would never need them again.  If you have piles of receipts with no future purpose, they are not serving you.  It's just clutter.  As a professional organizer, I felt that was unacceptable :) 

My receipt folder before digitizing

My receipt folder before digitizing

Creating a Plan for Digitization

Before digitizing my receipts, I decided to create a plan and write it down.  I knew it would be a waste of time to scan every receipt I have, so I created criteria for scanning.  I also decided to start storing my receipts by category, instead of by month.  As you design your plan, make sure it's simple enough that you'll actually follow it, and that anyone else you share your finances with can follow it too.  

Scanning Criteria

There is no one-size-fits all when deciding which receipts to scan, which to keep, and how long to keep them.  You should design your criteria around your comfort level and any recommendations from your tax accountant.  As a general guideline, you should keep all tax returns and supporting documentation for at least three years, but there are exceptions for keeping them longer

You may want to scan receipts related to medical expenses, car maintenance, purchasing equipment with a warranty, home improvements, child care, unreimbursed work-related expenses, self-employment expenses, charitable donations, assets greater than $100, and any other receipts related to your taxes.  I suggest keeping receipts for individual items costing more than $100 for your home inventory, but this threshold should be determined by your comfort level. 

For receipts that don't make the cut to be scanned, I store them in a 13 section folder labeled with categories such as, groceries, restaurants, clothes, pets, etc.  You could use a similar folder, or any clearly labeled envelope, folder, or box.  At the end of the year, I quickly review them, and then toss.

The Process

After you've determined your scanning criteria, make sure you have the right tools, then you're ready to begin! See my previous blog post for a more detailed discussion on tools, but the essential tools to have are a scanner, "Scanned" stamp, shredder, storage capacity, and a recycling bin.  In addition to scanners, there are many apps that allow you to take a picture of a receipt on your smartphone and upload it to a personal finance system.

When a receipt enters your house, you should first determine if it needs to be scanned.  If it does not meet your scanning criteria, file it in your folder under the appropriate category.  If the receipt does need to be scanned, either begin the scanning process immediately, or put it in a temporary envelope marked "To Scan."  This way you can batch your receipts until you're ready to scan them, and they have an organized place to live until that time.

When scanning a receipt, determine the digital location where it should live and set that as the default on your scanner.  This could be on your hard drive, an external hard drive, a cloud service (iCloud, Google Drive, OneDrive, Evernote, Dropbox), or your financial management tool (Mint, Quicken, and many credit card companies offer this service). 

When you create the digital copy of the receipt, you should decide if you want it to have optical character recognition (OCR).  The benefit to OCR is that PDFs are searchable.  Handwriting and print will be turned into searchable text.  This can be great when you want to find something specific down the road.  The downside to OCR is that the file sizes are larger. 

Now that you've decided where to store the files, you should create an organized filing system and naming convention.  I recommend creating folders by year, so it's easy to know when you can discard them.  You should use a consistent naming convention for file names.  I prefer "YYYY-MM-DD Payee, Items Purchased (optional) - $$."  Example: 2017-03-24 ABC Corp, Scanner and Shredder - $100.

After you have scanned and saved a receipt, use your "Scanned" stamp to mark the receipt.

At the end of the year, pull out your receipt folder and confirm that all receipts in the categories requiring scanning have been stamped "Scanned."  For receipts that don't require scanning (e.g., groceries, restaurants, clothes) and have no future purpose (e.g., needing to return or replace the product, taxes), throw them out.  

The Benefits

If you follow this process, you will significantly reduce the amount of receipts you keep, you'll be able to find a receipt when you need it, and you don't have to worry about losing an important receipt.  You can attach your digitized receipts to your personal finance system to be able to permanently substantiate an expense.  You can reduce your tax accountant fees by providing your CPA with organized receipts.  Some stores allow you to make a return by pulling up a digital copy of a receipt on your phone, so this can help when you're out running errands.  Last but not least, in the event of a disaster, you will be able to provide your insurance company your claims with receipts included in your home inventory.

If you would like help digitizing or organizing your receipts and financial records, or you are looking for a daily money manager, please contact us at info@lifewellmanaged.com and (804) 263-3186.