Which Financial Records to Keep

Keep critical documents and records safe and secure but accessible in a time of need

Certain documents and records are too important to retain in an ordinary file drawer. Fortunately, they are also the ones you tend to need least frequently. If they are stolen or destroyed by a catastrophe such as flood or fire, replacing them could be extraordinarily difficult, if not impossible. One of the best places to retain such items is a safety deposit box. These can be rented for a small monthly fee at many banks. The boxes are actually locked drawers within the bank’s vault. Various sizes are often available to meet individual needs. A home safe is another option, provided that it is adequately rated to protect contents from fire, water, explosions (gas leaks), and other calamities. Documents deserving extra protection include:

• Property deeds
• Trust documents
• Insurance policies
• Automobile titles
• Stock and bond certificates
• Wills and estate plans
• Personal property inventory
• Marriage and birth certificates
• Military discharge papers
• Passports

 

Keeping copies of vital records can save time, money, and headaches

There may be times when you need to know certain information contained on documents you’ve placed in safekeeping but don’t need the actual document. Avoid the inconvenience of obtaining the original documents by making copies of them for your file.

Tip: Create one file that includes copies of all documents you’ve placed in safekeeping (e.g., a “Safety Deposit Box” file). Then, you not only can turn to it for vital facts, but if you are incapacitated, whoever handles your important affairs will be able to locate key documents quickly.

Caution: The specific contents of some documents, such as wills and trusts, may be inappropriate to keep in more highly accessible home files. Instead of a photocopy, you might simply file a page containing those key facts that are less confidential in nature or obliterate very sensitive items on the copy.
 

Make backup copies of all computerized records

These days, many people keep important records on their personal computer. This can be an easy way to keep your records organized and updated, but it is important to keep a backup copy of these records in a safe place. If your hard drive has a meltdown, you’ll need to be able to recreate the important financial information that was lost.

Financial management software can be beneficial in tracking your finances, but it will take some time to learn how to use it properly. Don’t forget that you must still retain original documents as evidence of past transactions.
 

Save all essential records, receipts, and documents that your budgeting system requires

There are many reasons to save important records. If you apply for a loan (such as a mortgage, auto loan, or education loan), you will have to provide proof of your income. If you notice that money is disappearing out of your checking account, you’ll need your bank statements to back up your claim of unauthorized transactions. If you own financial securities, capital gains taxes are based on the price you paid for them on the date purchased. You’ll be required to verify this information. Potential tax audits will be far less intimidating if you have kept records to substantiate your tax return claims. An unsubstantiated claim will cost you not only the unpaid tax but interest charges and possibly, a hefty penalty.

Tip: Most of us realize it’s important to keep expense records, but for those with income sources other than employers, a cash receipts log can be invaluable. A small notebook or a few sheets in a separate file folder will do for recording income as it arrives. If you don’t recall later whether you received a particular dividend or rent payment, the log provides a quick answer.

Caution: Certain items, such as tips or business-related use of a car, require special tax treatment and records. Therefore, your record-keeping system must track these and retain any related documents.