Financial Record Keeping

Financial Record Keeping

Have you ever thought of record keeping as one of the important aspects in your financial planning?  Is organizing your financial paperwork are there in your recent agenda? Do you know which papers are important to keep, and do you have a systematic plan for keeping track of them?  How long should you retain them? In the event of an emergency, would you or a trusted friend or relative have quick access to your personal, financial, and legal documents? How do you replace important household papers that are lost, stolen, or destroyed?.  Here we will try to discuss two important methods of financial record keeping such as electronic and physical formats.  

 A comprehensive financial plan will include record keeping also.  This is something often ignored but yet more important than most people realize.  Essentially, you need a system in place for monitoring and managing your finances that is both comprehensive and easy to understand and most importantly reviewable.  What method you choose to do is mainly depends, how important you care your finance. It is up to you to decide, whether to go with a traditional manual book keeping system or keeping the details of your investment in your memory or go for a computer based software.   But earlier days, it was very easy, because only few instruments were available mainly bank deposits.  Now the situation has been changed a lot, and your investments are spread to numerous financial instruments and very difficult to track them in your memory or manually.  So, necessarily you need to follow some systematic methods to store, record and track your investment details.    You can opt for an Internet based system, financial software, or you can go about the old fashioned way with file cabinets and ledgers.  All are sufficient and you should choose the method you are the most comfortable with using.   Regardless of the type of system there are certain factors, which must be present:

A good financial record keeping system should be capable of list category wise all money comes into your account and goes out of your account.  It should also have facility to enter  all related details like date of (receipt/payment), Name of the recipient,  Bank/Company Name,  Deposit Reference No, Date of Deposit, Date of Maturity, percentages of interest, maturity amount, annual return, date of dividend/interest payment,  special remark/instructions, nominee/joint applicant  details,  address and other contact details etc.   In case you have invested in those securities where the prices are changing related to stock market like equities or mutual funds etc. it is recommended to maintain those details in a separate category with appropriate columns to accommodate all relevant details.  All income by way of interest, dividend earned on these instruments can be tracked separately.  This information is very much helpful you to calculate your total income for the income tax return filing purposes.  More over this will also help you to track your investment performances, investment maturity dates, installments payment dates(loan/ SIP), dividend/interest due dates etc.

A sound financial records system must have at least the flowing features.

a)    The system must be safe enough to not be at risk to natural disasters.

b)    The system must be comprehensive enough to provide the information you need.

c)     The system must be recoverable so that it easily allows you to review past history.

d)    The system must be able to allow for the future projections.

Safety is an important aspect of keeping records.  However, in the case of a fire or some other natural disaster it becomes apparent that this too is something that needs to be considered.  Talking to anyone who has been through such an event will quickly convince you that this is something you must account for while at the same time hoping it is never needed.  Needless to say there are more things than just financial records that you may want to include in whatever it is you decide to use as a safety device.  Some possible options to satisfy this need are intangible data storage or a fireproof personal safe.  You can easily find a fireproof safe at a business supply store.  Intangible data storage is referring to a third party whom you upload and backup files to on a regular basis.  These too are easy to locate with an Internet search.   Records are like the footprints in the journey our money makes into our pocket and back out of our pocket.  If we do not know where it enters and where it leaves we will never be able to manage it with any success. 

The record keeping system also needs to account take care data protection and safety  This is something that a computer based software like  excels can do.  It is very easy to make copies of the necessary files and burn them to CD.  If you use a paper based system you are forced to make hard copies and store them somewhere as well.  It is the prospect of recoverability that makes software based solutions the most effective and comprehensive.  A software-based system will have within it a backup system that ensures your records are safe and protected at all times and in any emergency.  A simple excel sheet can take care all of your financial and personal data keeping requirements.   Always ensure that, your personal and finance related data should be kept password protected and keep a backup in a CD or other data storage device.

Records are useless if you do not review them.  A good record keeping system should be able to project itself into the future or the past and also allow you to change certain figures and see the result of that change in your bottom line net worth.    Again, paper based systems fall short regarding this since any projection into the future requires a monumental amount of manual computation.  On the other hand, software solutions can quickly and easily give a picture of your financial situation at any point in the future or the past.

The following list outlines some of your physical record storage options:

a)     A safe deposit box is the safest, most secure storage option. You can rent a small safe deposit box at most banks for approximately Rs. 500 – 1, 000 per year. Jewelry and other valuables and other important and valuable documents can also be stored in your box. If the safe deposit account is opened jointly with your spouse, the remaining spouse can access the box  in your absence.  Always ensure to keep copies of all of your important papers in your home files or with your executor so your family can carry out your last wishes in your absence or in case there is a theft or fire in your safe deposit box.

b)     A fireproof safe gives you the convenience of having your important papers at home, while providing protection against fires and burglary. When purchasing a safe, be sure it will protect paper against the heat of a fire for 4-5 hours.

c)     A file cabinet is one of the most important components of your financial record keeping system. You don't need anything fancy, just something large enough to store all of your records. It is imperative that the file cabinet be kept in a convenient location to make it easy to maintain your system. Be sure to clearly label all of your files so that documents are easy to find. 

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