Documenting Finances The Right Way

When we plan our finances we do a lot of groundwork to supplement our efforts. But there is still one essential aspect of financial planning that we ignore. I'm talking about the preparation and maintenance of relevant documents pertaining to our finances. Proper financial documentation seems unimportant at first glance. But the absence of the right financial documents could have serious negative implications. A lack of sound financial documentation could bring the ownership of our wealth and investments into question. It could also hinder our families from understanding and using the resources we have built, in our absence. I am going to throw more light on why financial documentation is important today. I will talk about the financial documents we need to maintain and the ideal way to maintain them.

Who Uses Our Documents?

Our financial documents would be important to two major groups of people. The first of these would be outsiders such as banks, bureaucrats, creditors and so on. This group would be interested in our financial documents mostly to ascertain the ownership of our investments and provide certain services. A number of services mandate that individuals have the relevant financial documents in place at all times. The onus would be on us to produce the relevant documents in the appropriate form. Very little is available in terms of recourse to those who fail to produce them. Failure to produce the required financial documents when demanded may result in long legal disputes. This proves to be a major reason why we must not ignore financial documentation.

The other major group who would have an interest in our financial documents would be our families. Having a complete set of financial documents in place would give our families a clear picture of all our assets (both physical and financial). It would also help our families gain easy access to our assets. It also guides them as to how our assets must be used and managed. They would also help us transmit our wealth to our intended beneficiaries as desired after our time. Lastly, our documents would serve as a point of reference for our families.

Core Financial Documents

Our PAN and/or Aadhaar Cards are the ultimate proof of identity and address accepted across the country. Therefore we must check to see whether our names and other personal details such as address and date of birth in the ownership documents of our investments appear exactly as they do in our PAN and/or Aadhaar Cards. Special attention should be paid to the way names and addresses are spelt in both sets of documents. For instance, if the name on the PAN Card is spelt 'Ramesh Suresh Mathur' and the name on the ownership document is spelt 'Ramesh S Mathur', it is a discrepancy. It must immediately be reported to the concerned officials for correction. Once all the details of our ownership documents are appropriately verified, it would be time to begin putting our other financial documents together. Some of these documents would have to be created from scratch. Others would have to be collated and preserved.

Documents To Be Created

Among the ones that need to be created from scratch, the most important one would be our Investment Philosophy Statement. Our investment philosophy statement must contain details on how we approach our investment operations, the process we follow when making our investment decisions and the reasons why we hold each investment we own. Along with our investment philosophy statement we must also create a document giving details of each of our individual investments such as the quantity held, purchase price, date of purchase and so on.

Finally, we must create a single comprehensive master document (preferably password protected and in electronic format). It must contain various details regarding our investments. These include details regarding bank accounts, demat accounts, insurance policies, property papers, important passwords and so on. All of these documents would help our families access, use and manage our wealth anytime they need to.

Documents To Be Collated

Among the financial documents that we need to collate and preserve, the most important one would be our income tax return forms. We must ideally maintain our tax return forms pertaining to seven preceeding financial years. But if this is not possible, we must maintain them for at least five financial years. Other documents that need to be collated include our life and health insurance policies, property documents, bank statements, wills and so on. Some of us may be living abroad and managing our money in our home country by means of granting trusted acquaintances a Power of Attorney (PoA). Such of us must also maintain a copy of the document granting the power of attorney. Maintaining these documents would mean that outsiders would have next to no scope to stake a claim to our assets. It also allows our wealth to be passed on to our intended beneficiaries smoothly without any hurdles.

Parting Thoughts

It is always preferable to maintain our financial documents electronically. This would ensure greater convenience, flexibility and security. Regardless, the importance of having our financial documents in place is usually ignored either until we or our families need to use or prove ownership of our assets. And we almost always wake up to our negligence when it is too late to put it right. The pros of maintaining our documents outweigh the cons of not having them. It would help us avoid unnecessary stress and more severe implications. Therefore, it is essential for us maintain our financial documents, appropriately right from the start.