Quick Tips for Documenting Your Income
For self-employed individuals, securing personal loans, mortgages, and the like often comes down to income documentation. Having all of your financial information is critical, of course, but the more organized you can be, the smoother the whole process will be. With that in mind, there are some steps you can take - even if you aren't currently looking for a mortgage or other type of loan - that will keep you in good standing when it's time to reach out to lenders. The documents required can vary from lender to lender, but as a general rule of thumb, two years' worth of income documentation is a solid foundation to stand on. So, how can you make sure you're keeping track of your income?
1. Make A Schedule
Depending on the nature of your employment, this idea of a scheduled approach to income tracking might be a little different. Whether it's weekly, monthly, or even quarterly - keeping a schedule to maintain and review your documents is a great way to stay on top things year after year.
Set calendar reminders and carve out the time to review the documents you have, identify what might be missing, make any necessary updates, and just get things in order! When you take care of your finances in a consistent, ongoing way, there won't be any surprises when you're gathering proof of income to present to a lender.
2. Keep Documents Safe
Whenever you get a bank statement, tax return, profit and loss statement, etc., archive it! For paper documents this could mean a safe or fireproof filing cabinet. For digital documents, this means making copies and storing them in the cloud, on a private server, or at the very least, on a backup hard drive.
As you gather documentation to apply for a loan, the last thing you want are missing pieces or lost documents! Take care of the documents you receive in the mail or online, and make the extra effort to keep things organized, protected, and easily accessible. You'll be glad you did!
3. Use Technology to Help
From Quickbooks to Mint, and all kinds of other software, online tools, apps, and so on, it has never been easier to keep up with your finances. These technologies can help you track transactions, tag certain expenses for write offs, file away documents, process invoices, and on and on.
You'll still have to follow these other steps - reviewing your documentation from time to time to make sure everything's in order, and taking steps to keep your information secure and organized - but this type of financial technology can make it all easier, especially if you're an entrepreneur or freelancer. In turn, when tax time comes around, you'll have even better records, which means even more accurate taxes and a more detailed representation of your income.
The whole point is to take your time and stay on top of the various documentation you should be keeping track of. Having great records is a matter of diligence - and as suggested - making systems for yourself to avoid letting things slip through the cracks. The stronger your documentation, the more accurate your income is to lenders... And that will help you secure the loans you need!