Today I’m going to talk about how to organize your financial documents and records… Just in case something bad happens to you.
You and your family deserve to not worry about your finances. One important way to have peace of mind when it comes to money is to know where all of it is. If others depend on you, then you have an added responsibility: to make sure your loved ones are able to carry on in your absence. Again, simply organizing your documents is an important part of that.
I must take a moment and explain why this is a such a hot button with me. My parents died while I was in high-school. My father, the main bread winner, had all our important financial records and documents on the backs of envelopes, in misplaced folders, and in huge stacks and piles scattered throughout his office. In short, at the worst possible time, we were left clueless.
Needless to say, that left my siblings and me in an even worse situation than we otherwise would have been. In other words, I know what it’s like when people who are supposed to take responsibility fail to do so. Don’t let this happen to your family.
And even if you don’t have any dependents or a spouse, you’ll be far better off simply by organizing your financial documents effectively. True, if you get hit by a bus, it won’t matter… But what if you get hit by a Smart Car? If that happens, you’ll just be incapacitated – though the automobile may be totaled.
When something like this happens, someone else may have to handle your financial affairs for you – and you’ll have no control over this possibility. Here’s how to keep your finances organized in case of your death or disability:
Contacts, accounts, passwords, etc.
At the very least, create a spreadsheet. List out all of your important account names and numbers, websites, passwords, etc. Of course, if you just use a regular spreadsheet, you’ll need to take steps to be sure that you data is secure – just make sure it’s doesn’t wind up being inaccessible to your heirs.
In addition to critical financial information, create a second tab and include contact information for any important professional in your life – e.g., legal, tax, insurance, and investment advisors.
Once you’ve compiled all of this information, make absolutely sure that you update it as your information changes. If you use a piece of paper, it will wind up being a mess and you’ll have to redo it all the time.
I highly recommend that you and your spouse become proficient at tracking your spending. Use a budget tracking program and make sure to take turns updating the data. Then, meet each month to discuss if your spending is in line or if you need to make changes.
This exercise has tremendous benefits that I’ve discussed before (like helping your spouse spend less money) but for our purposes, this insures that your spouse will be able to take over the budgeting in case you can’t do it. You should also make sure that they understand the value of a high credit score and how to keep theirs intact.
If you’ve been the only one managing the budget, you’re spouse won’t be able to make intelligent decisions about investments or spending when he has too. Don’t they deserve better? Well, even if they don’t… Do it anyway. You’ll feel better about yourself.
Remember, you’re creating this document to empower your spouse to take over in case you are take out of the picture. How is your spouse and family going to survive from an income standpoint? What will the sources of income be? Social Security? Pensions? Life insurance? Investments? Spell it out.
This is neither the time nor the place to encourage your spouse to be creative. If you’re the one who is in charge of the financial management, you’re spouse will need all the help you can provide. This is the place to supply it, so be as specific and complete as possible
I suggest you keep a physical folder that has your trust or will, any health care directives or other powers of attorney, and your last five year worth of tax returns. These include all sorts of clues about your finances, including 1099 forms from your various savings accounts and investments. Also include copies of passports, birth certificates, real estate documents, vehicle registration, etc. If you own a small business, keep the documents for your business in that same folder.
If you want bonus points (and you should), scan all these documents and put them on a flash drive for your spouse as well as keeping them on your computer password protected of course. Here again, if you’re concerned about security, you can encrypt them – just be sure you spouse (and anyone else important) knows how to access this information.
As an extra level of precaution, tell your CPA, attorney, or financial advisor the location of all these documents on the computer and the password to access them. If and when an emergency comes up, your spouse may be so distracted that they’ll forget everything despite your best efforts.
Of course, the most important tip I can provide is to talk to your spouse. Tell him or her what to do just in case. Answer all of their questions. Be sure they’re aware of everything, including the details of your life insurance policies. Talk to them about investing too. Make sure they know what your small business is worth, how your investments are structures, and so forth.
I’ve done this with my wife. I’ve gone through all these steps. At first, I thought she’d be reluctant to discuss these morbid issues, but I found she really appreciated my efforts. This holiday season, can you think of a better gift to give your family than this kind of peace of mind?