The Importance of Financial Record Keeping

A sound financial life depends on good records. Therefore you must have a system in place for monitoring and managing your finances that is both comprehensive and easy to understand. What you use and how you use it is up to you. However, whatever you use there are certain attributes that need to be included for your record keeping system to be sufficient.

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.

Another important attribute of your record keeping system is recoverability. You need to have a system in place that can still be used if all of your records are lost. Unfortunately, this becomes difficult if you use a paper-based system. Unless you create copies of every record you make and store them separately there is no real way to duplicate a paper-based system. 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 record system should also do more than simply record. Ideally, a good record system should be able to project itself into the future or the past and give an ideal picture of your financial situation at that point in time. 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. This attribute alone should convince you to use a software-based system.

A record system involves not only the tracking of money but also the safety and preservation of documents that are vital to your financial well being. Loan papers, automobile titles and the like immediately come to mind. Though they must be stored separately they are still considered part of your record keeping system. Everyone should make the purchase of fireproof safety storage box and place all of their important financial documents within this box. This will ensure they are protected in the case of an emergency or a natural disaster.

I would like to go ahead and recommend two software packages that are comprehensive and effective in their management of financial records. They are: Microsoft Money and Quicken Finance. Both of these software systems provide a complete financial management solution. I would recommend that you evaluate both of these and make a decision to purchase one of them and implement it as a part of your road to financial freedom.

The important thing is to begin the process of keeping records because it is only by knowing where your money is going that you can control spending. Knowledge is powerful.