The Power of Tracking Your Finances: From Clueless to Cash Savvy (4/6)

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LEARN· SAVE· AVOID· TRACK· INVEST· RESIST

This series of six articles is intended to help you navigate and put into practice basic financial information that will help you make sound decisions that provide a higher assurance of financial security.

• TRACK

When you read the advice to keep a budget you cringe, “I haven’t got time for that!” A budget can be as elaborate as a detailed Quicken database listing all your sources of income and all of your expenses, perhaps even showing the cost and fair market value of everything you own and everything you owe. While that might be commendable and valuable, it isn’t necessary.

I chose TRACK because it evokes less fear and loathing than BUDGET. You cannot EXPECT what you refuse to INSPECT. That is obvious, but so few people will keep track of the ins and outs of their money. Why? My theory is that they don’t want to have to face head-on the foolish choices they are making day in and day out. The reasons are no different than the reasons why people refuse to keep track of what they eat. They fear the truth.

If you are not going to keep track of your money and its uses, you will miss out entirely when it comes to maximizing savings and investing, and your golden years will be far worse financially than they otherwise might have been. Tracking is paramount, and it doesn’t take much time at all. A diary or an Excel spreadsheet will do just fine. Most of the tracking is already done for you. If you use a credit card for most of your purchases, the monthly and annual statements provide a detailed categorization of where your spending ended up going. Categories such as rent, utilities, insurance, vehicle, gasoline, apparel, restaurants, and medical care are going to represent most of your spending; and your credit card statement will provide all of that for you free.

Here are the 10 primary benefits that come from tracking your spending:

1. Gives you control over your money. We tend to buy on impulse. Tracking will give you the feedback that you need so that you can control your spending impulses instead of them controlling you.
2. Keeps you focused on your financial goals. This six-part series is a system, not six disparate parts to pick and choose from. If you adopt all six, you will develop mastery over money, and tracking is integral to the system.
3. Makes you aware what is going on with your money. Becoming aware of the sources and uses of your money is the first step toward making tough trade-off choices when it comes to spending or saving.
4. Helps you organize your spending and savings. When you see the categories of your spending, you will find that a lot can be saved by making modifications to your lifestyle, modifications that reduce your spending. If rent is more than 30 percent of your income, you may be in an unaffordable apartment. If the sum of your car payments, repairs, gasoline, and auto insurance is a huge number, you may conclude that a vehicle that will cost far less is well worth the change. Today, with ride-hailing and alternative forms of transportation it is even possible to avoid car ownership completely!
5. Lets you decide, in advance, how your money will work for you.
6. Enables you to save for expected and unexpected costs. Budgeting allows you to plan to set aside money for emergency costs. The savings of the average American will not cover a financial emergency.
7. Allows you to communicate with others about money. Whether a partner, spouse, roommate, or other vested individual, your overall pattern of spending is influenced and impacted by this person, so include them on the conclusions and changes you are planning to make and let them share in the success!
8. Provides you with an early warning for potential problems. We can find ourselves in dire straits when the income just won’t cover our expenses. Tracking will enable you to take proactive measures—to plan—and in so doing head off the problem before it can become a very serious problem.
9. Helps you determine if you can take on debt and how much. Although I am opposed to debt in general, sometimes debt cannot be avoided. Tracking will give you the pro-forma picture, of what things will look like if you do take on that mortgage or car loan.
10. Enables you to generate more money. In the AVOID section of this series, we spoke of WASTE costs such as interest, fees, penalties, and fines. When you list these things and stare at them, you realize they simply need to go.

There are more benefits to keeping track of your money. Tracking is an integral part of money management; it cannot be overemphasized when it comes to its importance. If you can manage to get started, you will find it doesn’t take a lot of time and thought—and you will wonder how you ever managed in the past without it!

TRACK is not just a new discipline to adopt so that you won’t spend as much as you used to spend. Look at it as having more money available to save and invest, for this is the money that simply did not disappear. Having a good handle on where money came from and where it went, and planning how that should occur in the future let you sleep better.

Before reading the next part in this series, take these recommendations, and put a “why” in front of them to search the Internet to more fully understand the importance of each. Or contact me at www.linkedin.com/in/roddyrmann.

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