Finance For the Rest of Us – Part 1: The Importance of Records

(It’s been awhile since I last updated this blog, and while I meant to pick up where I left off a couple months back on those other topics I was writing about, I felt like composing something wherein I’m not the central subject. As a result, I ended up putting together this introductory post to a small mini-series of articles revolving around things I’ve learned and others could stand to benefit from knowing.)

When I initially started my current position, I was hired with the intention of doing part time writing to populate a website with content. Little after a week into the job, I rapidly became the full-time office and website admin. One of the biggest hurdles I faced in my initial months was being tasked with processing the accounting for the business, for various reasons:

  • I only vaguely acquainted with accounting principles, I had no idea what the actual practice of job costing entailed — I knew it only as a hazy concept.
  • The business is a sole proprietorship operating out of a home office, so the personal and business financials are interwoven and not conveniently siloed off into separate accounts.
  • Seeing no compelling reason to upgrade to a newer version (which I presently agree with), the company financials are administered using Quickbooks 2011: Contractor’s Edition.
  • Even with my lack of knowledge on the matter, I could immediately tell the previous “professional” bookkeepers that had worked on the business Quickbooks file had done a terrible job at it.

Now, in spite of ageist generalisms about seniors and technology, my boss is a pretty tech savvy gentleman. He has a NAS in his home network to centralize data across all machines in the office, and had invested in a dedicated document scanner that the old bookkeepers had at least mostly made consistent use of. However, they’d done an absolute trainwreck of a job with the digital and printed filing as they had with the Quickbooks file. Years of paperwork was scanned and either left in a single default bucket directory or spread out across the beginnings of various different filing systems on the workstations local drives and the network drive. They either had the default numeric date & time file name the scanner assigned it (YYYY_MM_DD_HH_MM.pdf), some other default generated file name (Scan001.pdf), or a generally bad manually assigned file name (invoice.pdf). The printed paper copies were out of order, in a folder structure that did not even remotely match the digital filing hierarchy.

In those first few months, I life threw me headfirst into an introductory crash course on personal & business finance/file management. In creating order out of the chaos that was the Quickbooks file, the digital archives, and the printed documents, I had two main takeaways:

  • The hands-on experience in file system architecture
  • The realization that everything I was doing at work was something I should be doing for myself

While I won’t pretend to be a master at this after having only done it once, the success I’ve had with it does leave me to believe that there’s something of value to be had in sharing what I’ve learned and done along the way. Though I can’t do it anymore, I left high school with the mathematical ability to calculate trigonometric functions and represent vectors on a cartesian plane as an equation, yet basic practical math skills such as personal accounting practices were never covered in the curriculum. Once I got a handle on this aspect of my job, a lot of it felt like things I definitely should have learned before leaving high school. This is just one in many areas in which I’ve found the public education system has failed to properly equip us for adult life.

Due to the breadth of scope in the things I’d say are critical to communicate, this is something that’ll definitely have to be done incrementally. So to start…

Finance For the Rest of Us – Part 1:
The Importance of Records

As I mentioned above, I’m no pro at this, but what I have learned by doing is that you can’t practice finance, the management and allocation of your monetary resources, without also doing accounting, which is exactly what the name implies: tracking where money is moving to and from. The key to being able to do this? Records; I called it a key, not a secret. Records is an umbrella term that basically amounts to having a copy of everything, from the doctor’s office visit to the copies of the results of the lab tests you leave with down to the receipt for the soda and pack of gum you bought at the convenience store on the way home. Many of us get by through life not fussing over every penny spent and earned, and most might find doing so to be overkill. Admittedly, even as a supporter of that practice, when it comes to actually doing it myself I have been guilty of finding it to be to unimportant relative to the time it would take to do it. Still, there’s a saying that holds some weight in inarguable truth: how you manage $100 is how you’ll manage $100,000. So, best do it right, right?

The biggest thing here is to make sure you always walk away from a transaction with a receipt. This means asking for one if necessary (convenience stores clerks have this habit of assuming you don’t want it since most people don’t bother with it), not throwing it away and putting it away in your wallet where you can find it later. If you just stuff it in your pocket,it’ll get wrinkled and become easy to lose/forget.

If you’ve seen Django Unchained*, remember Dr. Schultz in the opening scene: even when forcing the sale of a slave from a man whose brother he’d just killed and would soon after leave for dead at the hands of the other slaves he was transporting, he still took the time to produce a bill of sale for the transaction. Receipts matter!

If you’re getting that granular with receipt tracking, then you should assume that you’re going to need to be doing the same thing with bigger transactions too. Bills, bank statements, credit card statements, online purchase invoices, payment confirmations — anything that shows money moving in/out of your accounts should be saved and filed.

In an older world, this would have entailed buying a pack of folders from an office supply store and sorting your mail accordingly. In our modern-day internet support world, a considerable number of inbound records are distributed to us digitally instead of via mail. Rather than trying to manage a split digital/physical archive, we’re fortunate that technological advances have also provided us with severely decreased costs of storage memory and high quality portable image capturing devices built right into our cell phones. At the bare minimum, take good quality clear pictures of your receipts using your stock camera app. I recommend making sure of a dedicated scanning app which will quickly allow you to process, crop, and name your scan at the point of capture. On the iPhone, I’ve tried almost all of the major free apps and a few of the paid ones. From my experience, I would suggest either Scanbot (iOS / Google Play) or Scanner Pro by Readdle (iOS only). Business users will be able to get by using these applications, but depending on the size and/or volume of the business, a proper document scanner is arguably worth the few hundred dollars cost of entry.

A major rule of digital file storage is that if something only exists in one place, it may as well not exist at all. To that end, keep your paper copies of personal records if you have the space to accommodate them, but ensure that you make a digital copy of everything. Regardless of whether or not you keep your physical archive, make sure that your digital archive has a rolling backup somewhere as well, be it on a different computer, external hard drive, or in the cloud.

Now, once you get started with capturing and saving your records, ideally you’ll do whatever processing they require and get them sorted away. However, you may be pressed for time, or simply just not sure of what to do next. That’s okay — the important thing is that you have what you need available to you when the time comes to start making a system out of your accumulated records. As time goes by, you’ll gradually begin to reach the point where all of your records are stored, searchable, and readily available to you. But you can’t build something without your raw materials first, so to start, focus on collecting and keeping everything in as few different places as possible. When you get to the filing system creation, it’ll be a lot quicker to get through your backlog if you’re not having to try and locate your files in various folders.

For reference, here’s a table I formatted after poaching content from a few different articles on record keeping guidelines (whose source I can’t remember in order to cite & link):

Business

Personal

ONE YEAR

Correspondence with Customers and Vendors

Bank Statements

Duplicate Deposit Slips

Paycheck Stubs (Reconcile With W-2)

Purchase Orders (Other than Purchasing Department Copy)

Canceled Checks

Receiving Sheets

Monthly and Quarterly Mutual Fund and Retirement Contribution Statements (Reconcile With Year-End Statement)

Requisitions

Stenographer’s Notebooks

Stockroom Withdrawal Forms

THREE YEARS

Employee Personnel Records (After Termination)

Credit Card Statements

Employment Applications

Medical Bills (In Case of Insurance Disputes)

Expired Insurance Policies

Utility Records

General Correspondence

Expired Insurance Policies

Internal Audit Reports

Internal Reports

Pretty Cash Vouchers

Physical Inventory Tags

Savings Bond Registration Records of Employees

Time Cards For Hourly Employees

SIX YEARS

Accident Reports, Claims

Supporting Documents for Tax Returns

Accounts Payable Ledgers and Schedules

Accident Reports and Claims

Accounts Receivable Ledgers and Schedules

Medical Bills (if tax-related)

Bank Statements and Reconsilitations

Property Records/Improvement Receipts

Cancelled Checks

Sales Receipts

Expired Contracts, Leases

Expired Option Records

Inventories of Products, Materials, Supplies

Invoices to Customers

Notes Receivable Ledgers, Schedules

Payroll Records and Summaries, Including Payment to Pensioners

Plant Cost Ledgers

Purchasing Department Copies of Purchase Orders

Sales Records

Subsidiary Ledgers

Time Books

Travel and Entertainment Records

Vouchers for Payments to Vendors, Employees, Etc.

Voucher Register, Schedules

FOREVER

Audit Reports from CPAs/Accountants

CPA Audit Records

Cancelled Checks for Important Payments (Especially Tax Payments)

Legal Records

Cash Books, Charts of Accounts

Important Correspondence

Contracts, Leases Currently in Effect

Income Tax Returns

Corporate Documents (Incorporation, Charter, Bylaws, Etc.)

Income Tax Payment Checks

Documents Substantiating Fixed Asset Additions

Investment Trade Confirmations

Deeds

Retirement and Pension Records

Depreciation Schedules

Financial Statements (Year End)

General and Private Ledgers, Year End Trial Balances

Insurance Records, Current Accident Reports, Claims, Policies

Legal Records, Correspondence, and Other Important Matters

Minute Books of Directors and Stockholders

Mortgages, Bills of Sale

Property Appraisals by Outside Appraisers

Property Records

Retirement and Pension Records

Tax Returns and Worksheets

Trademark and Patent Registrations

SPECIAL CIRCUMSTANCES

DOCUMENT TYPE

DURATION

Car Records

Keep Until Car is Sold

Credit Card Receipts

Keep With Credit Card Statements

Insurance Policies

Keep for the Life of the Policy

Mortages/Deeds/Leases

Keep 6 Years Beyond the Agreement

Pay Stubs

Keep Until Reconciled With Your W-2

Property Records/Improvement Receipts

Keep Until Property is Sold

Sales Receipts

Keep for the Life of the Warranty

Stock and Bond Records

Keep for 6 Years Beyond Selling

Warranties and Instructions

Keep for the Life of the Product

Other Bills

Keep Until Payment is Verified on the Next Bill

Depreciation Schedules and Other Capital Asset Records

Keep for 3 Years After the Tax Life of the Asset

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