Home » Finance » Set Your Financial Records Right
  • Set Your Financial Records Right

    Ever tear your bedroom apart looking for your birth certificate, sure that you had safely stored it in your sock drawer? Or pulled an all-nighter on April 14 preparing your tax return because you spent the previous three days searching for documents and receipts? I am guessing that at least some of you are all too familiar with those frustrations.

    I’ve found that people with unorganized or incomplete financial records generally fall into two camps.

    The first are those that save every piece of paper they receive and shove it in the first drawer or shoe box that comes along. The second are those that arbitrarily keep some papers and throw out others based on nothing more scientific than their mood at the moment. But whether you’re a pack rat or laissez-faire filer, you’ll be left scrambling when you actually need to find an important document.

    Today, I hope I can help you take control of your financial records. Besides saving you time and frustration, an organized financial recordkeeping system pays off in numerous ways:

    • First, organized records will make your tax-preparation easier and less time consuming. Keeping thorough tax records throughout the year may also remind you of tax deductions you might otherwise overlook. And if the IRS ever questions your return, adequate back-up documentation may help you avoid interest charges, penalties, or additional taxes.
    • Second, good records will give you a better handle on your overall financial position and help your CPA identify financial and tax-planning opportunities.
    • And lastly, should you die or become incapacitated, a well-organized financial filing system will ease the burden on your loved ones by providing a road map to your financial affairs.

    So how do you get started? Take a trip to your local office supply store and pick up the items you’ll need to start a filing system. Buy hanging files, manila folders, as well as some sort of container to hold them. A metal filing cabinet works best for most people. But if space is an issue for you, a cardboard box or accordion files also work well.

    Some people find electronic file keeping a good option as well. Many software packages now allow you to download electronic statements. Other packages may help you save on space by enabling you to scan original documents on to your computer. Make sure you keep a backup file of your records in case your computer is ever damaged or destroyed.

    Another valuable tool in your effort to get organized is a paper shredder. Shredding unneeded documents that contain personal information is smarter and safer than simply throwing them in the trash.

    As you begin sorting through your paperwork, keep in mind that your records can be divided into three broad areas. The first are “current” files. These are the files you will be adding to regularly throughout the year. Current files will make up a majority of your files, so be sure they are conveniently located.

    Next, find a spot in your home for “dead files.” These are the records you need to keep but won’t have to access often. An out-of-the-way, safe and dry corner of your basement or attic works well for this purpose.

    The third component of your financial recordkeeping system is your safe-deposit box. If you don’t have one, I recommend that you rent one at your bank. It’s the best spot for storing documents that are costly or difficult to replace, like wills.

    Now comes the hard part. How do you go about sorting that mound of paperwork staring you in the face? Exactly what records do you need to keep and how long do you have to hold on to them? Which documents can be trashed or moved to your recycling pile?

    I hope to answer those questions for you in the coming days. I am going to break down my discussion by six general subject areas: taxes, banking, investments, retirement plans, insurance policies, and your home. Of course, your own personal circumstances will dictate how you organize your files. But these six categories are universal to most of us and can cause the biggest headaches when your records are sloppy or incomplete.

    Tune in to the next post for a continuation of the discussion.

Leave a Reply

Your email address will not be published. Required fields are marked *