Please forgive me. For those who were counting, semi-monthly came and went a long time ago. Mea culpa, mea culpa, mea culpa. I promise I’ll make it up. After all, it was your loss for me not writing.
Last time I wrote, I begged that you begin to become aware of your financial surroundings. If you’d like to re-read it, I’ve posted it here. It might be worth swinging through again. How did you answer those questions? Feel free to email some of your answers. Remember, no judging from this guy.
If you didn’t answer those questions, at least attempt this one: What are your goals? Personal finance is structured around setting and achieving goals, both short term and a long ways down the road. If you don’t have a defined goal (or goals, even better), you’re just wandering around lost. So set some goals. (Also, accomplishing things and checking them off your list feels great. I dare you to try it)
I guarantee that some of you already figured where I’m going first – budgeting and tracking your expenses. It’s step numero uno. You cannot become aware of your financial position and habits without tracking them. It doesn't matter if you are in school and making next to nothing, eating PB&J's nightly or working for The Man and paying Uncle Sam. Track what you make, track what you spend.
Using my wife as an example again, one of the most helpful tools she gives her patients is a start in writing down the things they eat. Actually writing them down. It provides them a great picture of how ‘healthy’ their eating habits are. But more importantly, it holds her patient accountable for their own actions. The same is true when you track your expenses. Much like the picture of food habits, your spending habits tell the tale of your lifestyle. If you showed me a detailed breakout of how you spent your money, I could instantly tell what things are important to you and how you live. I could also tell you where to make changes and improve other areas. We’re not perfect, but we can take small steps to improving ourselves. Take accountability for your financial literacy. Tracking expenses is a small, easy step.
There’s many ways to do so. Personally, being an accountant, I geek out with numbers and spreadsheets. I’m convinced they are God’s greatest gifts to computers. After every month, I categorize our income and expenses for that month and put them into a 'personal financial statement' spreadsheet. Categories include: gas, rent, loan payments, insurance, food, drinks and entertainment, household expenses, shopping, etc. It shows me how much we made, how much we spent (and on what things), and how much we saved. It holds us accountable for spending too much or saving too little.
Like I said, I like spreadsheets. But there’s an easier way for those who don’t – www.Mint.com. I recommend this tool if you want something simple and already developed. It’s secure and provides tons of features. It works by linking to your banking accounts, investment accounts, loan accounts, or basically any account that you can access online. It automatically takes the transactions from each account, easily allows you to drop them into categories, and then spits out charts and graphs to display almost anything you’d like to know. I’ve used it before. Liked it quite a bit, but decided that I ultimately wanted to just do it myself for a little more flexibility (I break out my paycheck tax withholding so I can know how much I’ll owe come April). There are many others as well, but Mint is the only one I've tried.
However, tracking your income and expenses only gets you so far. You need to review the final product and make changes – a.k.a., budgeting. But that’s for next time. Challenge to accept: If you don't already, track your income and expenses for one month using whatever means you'd like. Then evaluate it. Make at least one recommendation for yourself