clean up!

Bills, credit-card receipts, ATM slips, investment records, bank statements— they pile up and multiply faster than dirty dishes after a holiday meal. It's easy to feel buried under an avalanche of paper and too stressed and guilty to deal with it.

Fortunately, there are solutions short of hiring a full-time financial manager. Getting clear of the paper chaos will save time (no more scrambling through drawers to find that overdue bill), -money (fewer late charges and no lost deductions), and psychic energy (no more feeling out of control of your own financial life).

The experts say you can organize your records in five simple steps. Here's what they recommend:

Step #1: Toss what you can.

Nearly all of your financial papers can be divided into three categories: records that you need to keep only for the calendar year or less, papers that you need to save for seven years (the typical window during which your tax return may be audited), and papers that you should hang onto indefinitely.

For instance, do you really need to save all those ATM-withdrawal receipts? No. Once you've recorded the amount you've withdrawn in your check register and reconciled the information as it appears on your monthly statement, you can throw away the ATM slip. The same holds true for deposit slips and credit-card receipts, once you've checked to make sure the items you bought appear correctly on your statement. Don't keep sales receipts for minor purchases after you've satisfactorily used the item a few times or the warranty has expired. Keep receipts for major purchases (any item whose replacement cost exceeds the deductible on your homeowners' or renters' insurance).

Shortly after the end of the calendar year, you will probably be able to throw out a slew of additional paper, including your paycheck stubs, monthly credit-card and mortgage statements, utility bills (if they are not needed for business deductions), and monthly or quarterly reports from brokerage and mutual-fund companies for the previous year.

"Typically the entire year's activity is listed in detail on your final, end-of-the-year statement, making every other statement redundant," says Ed Slott, a CPA in Rockville Center, New York. Your final pay stub and W-2 form, for instance, document all your earnings for the year if you work for someone else; if you're self-employed, your 1099 forms do the same for you. Similarly, most investment companies and some credit-card issuers send out comprehensive statements in January. "Keep the monthly updates until you reconcile them with the year-end summaries," says Slott.

Step #2: Hang onto what you must.

You will, however, need to hold onto those final credit-card statements, along with your W-2s and 1099s, for at least three years and, preferably, for seven. The Internal Revenue Service has up to three years from the date you file your tax return to examine it for errors and as long as six years to conduct an audit if there's reason to suspect you underreported your gross income by 25 percent or more. (There is no statute of limitations for anyone who has deliberately committed fraud.) Indeed, you'll need to keep any paperwork that supports your return until that audit window closes. Among the additional documents you should retain: canceled checks and receipts for all deductible business expenses (such as those for entertainment, home-office equipment, and professional dues), retirement-account contributions, charitable donations, child-care bills, out-of-pocket medical expenses, alimony, and mortgage-interest and property-tax payments.

Unless you've knowingly submitted a false return, you can toss these supporting documents after three to seven years, depending on how straightforward your tax situation is.

But don't throw out the actual tax returns or the year-end summaries of your investment accounts, even after the chances of an audit have all but vanished. These documents don't take up much space and can come in very handy for future financial planning.

For insurance purposes, you'll also want to keep receipts for major purchases and receipts that show how much you've paid for home improvements indefinitely, both to satisfy potential buyers and to reduce possible capital-gains taxes when you sell your home. True, these records are not as important as they once were because of recent changes in the law that exempt from taxation the first $500,000 in profits from the sale of a home ($250,000 for singles), but they may still come in handy. It is crucially important to keep the confirmation slips that show beneficiary designations and the purchase price of stocks, mutual funds, and any other investments you hold; hang onto these records indefinitely because some day, says Slott, "you or your heirs will have to know exactly how much you paid to determine the profit on your investment for tax purposes."

Step #3: Give your papers a home.

The number-one reason that people get overwhelmed by the paper in their lives, experts say, is that they have no set place to put it. As a result, piles grow and documents end up in a dozen different places, none of which you can ever remember when you need to lay your hands on them.

If you have a spare room or corner that you can designate as the place where you deal with paperwork, great; if not, a drawer, cabinet, or closet where you can store bills and current records, situated near a table on which you can write checks, will do. As for supplies, you'll find folders or manila envelopes will come in handy for filing the papers, as will a file cabinet or cardboard box to hold the records.

Keep your will, birth and marriage certificates, insurance policies, property deeds, and other permanent records in a safe but accessible place near your other financial documents, so you and your heirs will always be able to get to them quickly, if they need to.

Step #4: Be systematic.

Have a plan for processing all paper. Pick a spot in your information area where you'll put the bills— say, a manila envelope, a drawer, or a plastic in-box or sorter— and toss in each envelope as it arrives in the mail. Then, when you sit down to write those checks each month, you'll have all the paperwork you need in one spot.

Now here's the key: Once you've paid the bill or checked the statement, file it immediately. "Your goal should be to touch a piece of paper as few times as possible, rather than shuffling it from pile to pile," says Paula Boyer Kennedy, a financial planner in the Minneapolis office of Ernst & Young. "If you stick the bill back in the drawer after you pay it, it will find friends, and they will mate and produce offspring. Pretty soon, you'll have a true litter."

Again, a very rudimentary filing system is all you need. The simplest method is to throw everything that is tax-related into a single receptacle as soon as you're done with it— a drawer, a file cabinet, a paper accordion file, or even a shoebox will do. That way, when you're ready to fill out your tax return, you'll have all the paperwork you need at your fingertips. Alternatively, you can set up a slightly more organized system at the outset, with separate file folders for the major categories of your life. You might, for example, label your folders by the type of account (credit-card statements, brokerage statements, utility bills, etc.) or by tax category (deductible business expenses, charitable contributions, and so on) or by financial goal (housing, retirement, college fund, etc.). This may take more time initially, but, in the long run, it will save time.

Step #5: Tackle the backlog.

Once you have a system in place, you still have to deal with all the piles you've already accumulated. Instead of launching a massive reorganization— a task so daunting that few people will take it on— start by sorting through a small stack at a time. You can allot half an hour a day to sift through old papers, perhaps while watching the news or listening to music.

You'll be amazed at the difference a little organization makes. "People don't realize how much they pay as a result of having their financial papers in disarray— a late credit-card charge here, a lost tax deduction there," says Stephanie Denton, a professional organizer in Cincinnati. Even greater, though, may be the long-term psychic and financial benefits. Once you're organized, "you can focus your mental energy on the really important stuff, like your investments and your financial goals," says Terry Savage, author of The Savage Truth On Money ($15, www.amazon.com). "Getting your financial papers in order pays big dividends in peace of mind."