Legal Lad and the Get-it-Done Guy tell you what paperwork you need to keep and how long.
There are many records you want to keep temporarily, but then get rid of, like Pat's phone number. You remember Pat? The one who dumped you in 8th grade? Yes, it's finally time to move on. Basically, you can toss documents that don’t matter anymore. Any time you pay money, keep a receipt to prove you paid. Do this for bills, credit card purchases, mortgage payments, or installment payments. Keep it until you get the next statement showing your payment and the new balance. Then you can toss the receipt, and just keep the current statement. Once you get a new statement, you can shred the current one and keep the new one. On rare occasions, I've needed to find a statement that was months or years old, but generally for a small fee, my bank or mortgage company has been able to provide a copy, easily.
When you pay off a loan, keep a copy of the final statement proving you paid it. That way, if your credit record ever gets screwed up or someone forwards your closed loan to a collection agency, you can clear up the matter quickly. I keep loan payoff proof for seven years because I like the number seven.
When you're owed money, keep proof! If you send someone a bill or an invoice, keep a copy until it's paid. If you are awarded money as a rebate, or from a dispute award, or because you loaned someone money, get it in writing so you can prove the money should be yours. If you're loaning money to friends or family, consider using VirginMoneyUS.com. They help people loan money and track the loans in a professional manner.
For other items, like academic records, find out if you can get them again if you need them. If so, toss the paper. Believe me, your school will be thrilled beyond belief to forward your transcript to you should you need it again in the future. After all, you'll have to give them your mailing address so they'll be able to hit you up for money.
Last, there are several ways to keep documents. You should keep temporary documents in a file cabinet or drawer in your home or office that is well-organized. For those documents that require the originals, you can consider a home safe or bank safety deposit box. If you have access to a high-speed scanner, you can also just scan documents into a PDF format and save them on your computer and back up system. Most modern copiers have scanning capabilities.