Personal Record Keeping and Financial Planning

A comprehensive financial plan will also include record keeping. This is something often neglected 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 use to do this is up to you. 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:

Aspects of a sound financial records system

  • The system must be safe enough to not be at risk to natural disasters.
  • The system must be comprehensive enough to provide the information you need.
  • The system must be recoverable so that it easily allows you to review past history.
  • The system must be able to allow for the use of “what if” scenarios and projections.

Many people disregard safety as 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. Therefore, the minimum that a good record keeping system should do is list all money that comes into your possession and all money that leaves your possession. Not only should it include the time and the amount but also the ‘to whom’. By knowing to whom our money is going we can make better decisions regarding our spending and savings in the future. Thus, at a minimum find a system that tracks your money flow.

The record keeping system also needs to account for recoverability. This is something that a computer based system excels in. 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. Used in conjunction with a third party storage company, you have a comprehensive and safe solution that is easy to use.

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.

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