Today we look at the age-old adage of the pen being mightier than the sword, though in our case it may be more proper to say that paper is mightier than the lawsuit. In a court battle between two parties, the winner will almost always be the one whose evidence demonstrates their claim better than the other party’s evidence. When one entity brings a lawsuit against another, that evidence can include contracts, bills, receipts, tax forms, and various other sorts of documentation.

For example, consider the simple case of an IOU. If Bill lends Emily $50 and she signs an IOU to pay it back within six months, Bill can use that signed IOU against Emily in court should she fail to provide a timely repayment. In fact, Bill could likely avoid a trip to court altogether by reminding Emily of the signed IOU. But what if Bill loses the IOU or he doesn’t obtain one in the first place? Lacking some other form of evidence, Bill will almost certainly lose in court if Emily simply denies the existence of the loan.

Of course, $50 is small change in the course of the average American’s lifetime. In the next few decades, millions of dollars are likely to pass into and out of your possession, and just about every one of those transactions will be based on some form of contract. But when two parties enter a dispute regarding those transactions, it’s important to be prepared with documentation to help prove your claim. Here are some tips you can use to make sure you lead a well-documented life.

• Save everything you may need later. Yes, this is a pretty broad statement, but it’s also the most vital step to keeping good records of your life’s many transactions. Use your common sense (or someone else’s like I sometimes do) to determine if you should hang on to any documents that come into your possession.
• Organize, organize, organize. It’s worth saying three times because it’ll save you tons of time down the road. Whatever your system for keeping documents straight–alphabetized files, electronically scanned documents, or buying a new house for each of your receipts–stick with it so that you’ll be able to find that receipt from 2003 that shows you paid for your tummy tuck in full.
• Always get a receipt. Absolutely anytime that money leaves your hands, you should ask for a receipt. The best way to ensure this is to always pay by check or credit card; your monthly statement will act as a receipt even if you don’t get one at the time of payment. Should you give cash to another person, request a receipt without exception.
• Read documents before you sign them and always get a copy. And just as important as reading a document is understanding it. Don’t be afraid to ask for clarification when you come across confusing wording; chances are it’s there for a reason beneficial to the other party.
• Keep multiple copies. Especially for critical documents like deeds and contracts, you’ll want at least one more copy to exist in a different location from the first. The easiest way people are achieving this now is to store electronically scanned versions of paper documents online for simple retrieval anywhere you can get to a computer. Be sure to encrypt your files so they’ll be protected from teenagers with nothing better to do on weekends than look at your tax returns.
• Use your documents to stay out of court. If the other party suspects that you lost your receipts, it’s all the more reason for them to haul you before a judge and demand payment. But if you show them just how good your record-keeping skills are, they’ll think twice before wasting the time of their expensive lawyers. Even after you’ve received a summons, a simple phone call, letter, or fax may be all it takes to escape a day in court.
• Use your documents to stay out of court. Is Nick going crazy crazy and saying everything twice twice? Maybe, but it’s worth noting that documents work both ways for avoiding confrontations in court. If someone owes you money, demonstrating that you have the documentation to prove it could get them to pony up so they don’t end up owing you legal costs as well.

If you have other document-keeping tips, please share them here. Next time, we’ll talk about securing your home from one of the most dangerous predators of all: ravenous, money-hungry lawyers!