Today’s 31 Days To Your Financial Future task is one of those that might not have a tangible effect on your day-to-day finances…until the day you really need it. I’m talking about financial record-keeping.
Most of us keep track of a few key pieces of financial information, like old tax returns, but there are a wide range of records that should be kept for a few years (and sometimes for longer), including things like certain purchase receipts, final statements reflecting discharge of debts, and anything involving legal issues.
I had a very real experience with this in college. On a trip home to visit my parents, a police officer pulled me over for a minor driving error. He gave me a warning for the actual violation that prompted pulling me over, but gave me a citation for not having proof of insurance. I had insurance, I just didn’t have a current card to prove it. No big deal, the officer said. Just take proof of insurance to the courthouse and the citation would be removed.
A few days later, I did just that. The clerk looked over my proof of insurance and told me everything was good to go. I didn’t get anything in writing to show that I’d complied with the law; I just assumed everything was properly recorded.
I went back to college. Months passed. One day, my father calls me and says “Uh, son, are you in trouble?”
A local deputy had showed up at my parents house to bring me to court over (you guessed it) a failure to provide proof of insurance. I rushed home, went to the courthouse and explained that I had in fact provided proof of insurance within days of the incident…but because I could provide no physical proof of my side of the story, I had to pay the $252 fine in the end.
That was years ago, but I still have the receipt from paying that fine. I keep it in my wallet as a reminder of the importance of keeping good financial records. (And maybe a little paranoia. Haha.)
Let’s talk about what kinds of records you want to keep and how you should keep them.
What Kinds of Records Should You Keep?
I may go a little overboard with records, but I keep pretty much everything that has a dollar sign on it, at least for a while. Some of the things you should keep records of:
- Tax returns
- Retirement contribution records
- Paid bills
- Debt receipts and statements
- Purchase receipts for expensive items
- Warranty information for those items
- Receipts for payment of legal fines or fees
In particular, you want to keep anything that you might be asked to prove later on. How long you keep it depends on the particular record in question — tax-related records should be kept for up to seven years, in case of audit; warranty information and purchase receipts can be discarded once you no longer own the item or once the warranty expires. Paid bills and balance statements can probably be discarded fairly soon, but I’d definitely make sure to keep any final statement showing balance: $0.00.
For things like homes and vehicles that require regular maintenance, it’s a good idea to keep a log of what maintenance was done and when. My wife and I are recently regretting not keeping good records about her old car; trying to sell it now, there’s no clear picture of what parts were replaced when, so we’re sometimes finding it difficult to answer potential buyers’ questions.
How To Store Your Records
Ideally, keep both a physical AND a digital copy of each record.
Physical records are actual paper. This could be the original statement or receipt you received from the company, or a printed copy (if all your correspondence is received electronically). A paper file system can be very cluttered if you don’t take steps to organize it well — a file cabinet or box is key. You can get cheap file boxes for less than $10 each, useful if you only need to store a small number of important documents.
For more security, you can also find locking, fire-resistant, waterproof file boxes, but they’re more expensive.
Digital records are any sort of record stored on a computer or other device. It’s important to keep digital records in a central place — it doesn’t help you if they’re spread out over 13 different accounts. Whenever possible, a PDF makes a great digital record, but screenshots work just as well. For physical records that you want to digitize, a scanner works best, but in a pinch, you can take a photo using your smartphone’s camera. Just make sure the document is legible.
Periodically create a backup of your digital files, such as downloading them to an external hard drive or thumbdrive. You can even store these files through a cloud storage service, but make absolutely sure that the service you choose is secure and encrypted, so your sensitive information isn’t compromised.
Never Give Up Your Original
Whenever a dispute arises and you do need to present physical proof of a financial transaction, don’t give up the original, especially if it’s your only copy. You can show the physical copy in person, but if you’re asked to give them something, go make a copy of it and give them that.
Make It A Habit
I’m in the process of breaking a bad habit of forgetting to file my records away. While I take care to keep every financial record I need to keep, my receipts and statements often sit on my desk or bookshelf for days before they get put in their proper place. If you find it difficult to remember to file things away properly, consider setting reminders for yourself that trigger periodically throughout the week — I set up some periodic emails with IFTTT to remind me to put things where they need to be.
Tomorrow’s another exciting two-for-one day! Here on Stop Worrying About Money, I’ll show you how to understand and identify quality in the products you buy; that way, you can ensure that you get your money’s worth whenever you buy something. At the same time, I’ll be guest posting at Money Manifesto, where I’ll talk about so-called “buy it for life” products.
Do you keep good financial records?
How good are you at keeping well-organized financial records? Do you hate filing statements and receipts? Tell us in the comments!
Photo by C x 2.Click here to read Day 12!