Importance of Financial Record Keeping

Individuals and businesses need records to help them evaluate the past and plan for the future. Comprehensive and easily accessible records allow you to assess your financial position and make adjustments when necessary. You can clearly see the importance of good financial records when you consider the scenarios where records are used.

Preparing a budget: What funds did you receive and where did you spend them?

If you want to make the most of your money, you need to know where it’s coming from and where it goes. Keeping records of your income helps you to know how much you have to work with. Keeping records of expenditures tells you where and how you’re spending. Good records allow you to decide how much to set aside for savings or large future purchases and to prioritize spending so available funds are put to the best use. If you have a debt problem, it’s very difficult to work your way out of it without understanding your actual financial situation, and that requires records.

Filing tax returns: Substantiate and take advantage of all your allowable deductions.

The tax code is filled with legitimate deductions for a variety of taxpayer expenses. The one factor that is the same for all of them is the requirement for appropriate records to support the claimed deductions. In the case of an audit, the first thing the authorities will ask for is your receipts, mileage log, paid bills, etc. When it comes to taxes, your word is not sufficient – records are a necessity.

Warranties and insurance: Keep documentation to support repair or replacement of damaged purchases.

Almost all manufacturers offer some type of warranty or guarantee on goods they produce. They also often require proof of where and when the goods were purchased because many of these warranties have a time limit. Retailers offer extended warranties on various types of products, but you won’t be able to take advantage of the extra protection you buy if you don’t have the record of the warranty at hand.

In the event of an insurance claim, you may be asked to provide documentation about belongings you claim as missing or damaged. This is especially true of unique or high-value items. Your insurance premiums can be wasted if you don’t have proper records to backup your claims.

Credit score: Monitor your credit report and know if the data it contains is valid.

Major financial decisions such as buying a house or car rely on securing credit to help finance the purchase. Good financial records will help you to know quickly if something on your credit report is out of line and will provide the information you need to refute errors and correct your credit history.

Whether you prefer paper records or digital ones stored in your computer, it is essential that you keep good records and keep them up to date. Your long-term financial success will depend in part on making the effort to organize and maintain your files so you have access to the information you need when you need it.