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How to Back up Your Financial Documents

If you are used to storing financial documents in a physical, hard copy form, you are not alone. And there is a good reason for doing that: many of us have been working with paper records for decades, plus digital copies of some documents are not considered valid for official purposes. All the same, digital copies of your important documentation can be easy to refer to and allow for a layer of redundancy if something unfortunate were to happen to the original paperwork.  

HCM Clients can back up their sensitive documents (tax returns, estate plan documents, insurance policies, etc.) through our client portal. But if you are not a client, or you would like to keep additional digital copies of important documents, how would you want to do that?  

Basics of Financial Document Backup 

When making digital backups of important financial documentation, a “rule of three” is often recommended. Many experts recommend any important documents be backed up in three places: for example, your local computer, an external hard drive, and remote cloud storage. This way, if your local computer is damaged by malware or a computer virus, your external hard drive has a backup of your sensitive information. Similarly, if the external hard drive breaks or becomes inaccessible, you have local and cloud copies. And if for some reason your cloud storage is inaccessible, there are multiple local copies you can access. 

 Local Storage 

Local storage has the advantage of being easiest to access. The key thing to remember is to back up your documents regularly. Fortunately, this can be automated. On a Windows computer, you can automatically back up your documents with Windows File History. If you use a Mac, you can use Time Machine to back up your files. See Apple’s website on how to configure Time Machine to back up your files automatically. Similar steps can be taken when backup information on an external hard drive.  

 Cloud Backup 

Cloud backup is comprehensive, allowing you to completely restore all your files. This is a great option for keeping your important documents and files, financial and otherwise, together. Cloud storage also makes it easy to share files with others, such as your financial, tax and legal professionals. Cloud storage typically works with any device, regardless of the manufacturer or operating system.  

When you’re choosing a cloud backup option, consider any fees or extra costs that you may be charged if you need to restore all your data at once, as well as any limitations there might be on the number of devices you can use. It’s also important to look at the total size of the storage space offered and ensure it’s appropriate for your needs. 

Keep in mind that cloud backup companies might not be able to restore your system immediately. Make sure you pick an option that offers a recovery timeframe that works for you. 

If you’re looking to store sensitive or private documents, make sure to use a service that allows you to use your encryption key. However, if you misplace your passphrase for that key, you may be unable to access your backup data, and the service won’t be able to help. 

Regardless of how you choose to safeguard your documents, it’s essential that you maintain some sort of backup system. Hopefully, you’ll never need your saved files, but you’ll be thankful they’re near at hand if that day ever comes. 

Jake Butcher CFP®
Jake became a member of HCM Wealth Advisors in 2010  and is now a Wealth Advisor, Partner, and member of the HCM Technology Committee . He enjoys spending time with his wife, Katy, daughter, Milly, and son, Graham. Some of his hobbies include playing basketball, golf, tennis, trying new restaurants, and cheering on the UC Bearcats.
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