Back to Basics: Keep Track of Your Money

Back to Basics: Keep Track of Your MoneyAs I discussed in last week’s post, I want to spend the next few weeks going back to basics on how to get our finances under control.

In my experience, one of the most important skills to develop with your finances is the ability to keep track of your money.

In order to gain control of your money, you need to understand what’s happening with it. How much comes in? How much goes out and for what?

How much money have you saved? How much money do you owe and to whom?

If you can’t answer these questions, you don’t have the level of understanding required to win with your finances.

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So how do you get there? Here are 4 basic, easy things to do to keep track of your money.

The key is that you have to do them consistently:

1. Record Your Expenses

You need to keep a register of where your money is going. You can use the old fashioned approach of your paper checkbook register, computer software.

In many cases, you might be able to do it by using the on-line features of your bank or credit union.

Even if it is a few bucks for a venti latte or you just took $20 out of the ATM, record it and ensure it is categorized properly (e.g., utilities, gas, dining, groceries, etc.).

2. Keep your Checkbook Balanced

Every month, your bank or credit union will provide you with a statement of your checking and savings accounts.

Spend a few minutes balancing your checkbook. It does not take long and it will help you know where you stand with your money.

You can also avoid overdraft fees, find expenses you might have forgotten to record, and also discover erroneous charges due to bank errors or worse, erroneous charges due to identity theft.

The instructions for balancing your checkbook are usually included on the back of your statement.

Do it every month!

3. Maintain a Net Worth Report

You need to know what is the value of your assets (what you own outright such as savings, retirement accounts, property), and your liabilities (your debts such as credit cards, car loans, student loans, and mortgages).

Your net worth is the difference between your assets and your liabilities.

Most financial management tools provide you with an easy way to track your individual assets and liabilities so you can keep track of your net worth.

4. Establish a Written Budget

As you begin to habitually do the actions above, you will begin to gain great insight into where your money is going.

This will help you greatly as you tackle the task of living on a budget.

Remember, a working budget will be the most powerful tool in your arsenal.

This is a simple blue print for managing your money: how much money comes in (i.e., your income) and how much money goes out.

The key is that you have to do it every month before the month beginsYou have to plan it and live it!

As usual, it is always up to you to change your ways. You have to decide that this is important enough for you to do it.

“Be diligent to know the state of your flocks, and attend to your herds;”
Proverbs 27:23 (NKJV)

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Question: What tools are you using to keep track of your money?

Winning Money Habits: Track Your Money

Winning Money Habits: Track Your MoneyHappy New Year!!! Did you make any resolutions to improve your finances in 2014? If you did, I want to offer you a little help.

In my experience one of the most important skills to develop with your finances is the ability to keep track of your money.

In order to gain control of your money you need to understand what’s happening with it. How much comes in? How much goes out and for what?

How much money have you saved? How much money do you owe and to whom?

If you can’t answer these questions you don’t have the level of understanding required to win with your finances. Learning to track your money is a winning money habit you should develop.

So how do you get there? Here are 4 essential tasks you need to do in order to track your money consistently:

1. Record your Expenses

You need to keep a register of where your money is going. You can use the old fashioned approach of your paper checkbook register, computer software (e.g., Quicken), or in many cases, you might be able to do it by using the on-line features of your bank or credit union.

Even if it is a few bucks for a venti latte or you just took $20 out of the ATM, record it and ensure it is categorized properly (e.g., utilities, gas, dining, groceries, etc.).

Having a historical record of your expenses will help you with your monthly budget, especially as you get started.

2. Keep your Checkbook Balanced

Every month, your bank or credit union will provide you with a statement of your checking and savings accounts. Spend a few minutes balancing your checkbook. It does not take long and it will help you know where you stand with your money.

You can also avoid overdraft fees, find expenses you might have forgotten to record, and also discover erroneous charges due to bank errors or worse, erroneous charges due to identity theft.

The instructions for balancing your checkbook are usually included on the back of your bank statement. Do it every month!

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3. Maintain a Net Worth Report

You need to know what is the value of your assets (what you own outright such as savings, retirement accounts, property), and your liabilities (your debts such as credit cards, car loans, student loans, and mortgages).

Your net worth is the difference between your assets and your liabilities. Most financial management tools provide you with an easy way to track your individual assets and liabilities so you can keep track of your net worth.

As you make progress with your finances, your net worth is the true measure of winning with your money.

4. Live on a Written Budget

As you begin to habitually do the actions above, you will begin to gain great insight into where your money is going. This will help you greatly as you tackle the task of living on a written budget.

A working budget will be the most powerful tool in your arsenal. This is a simple blue print for managing your money: how much money comes in (i.e., your income) and how much money goes out.

The key is that you have to do it every month before the month begins. You have to plan it and live it!

Question: What else do you do to keep track of your money?

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5 Common Budgeting Mistakes

Cash, Budget

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As I have written previously, I believe having a monthly working budget is the key to your financial success. If you can’t control your money via a budget, you can’t build savings, you can’t pay-off debt, and you can’t plan for the future.

However, it is quite possible that as you are getting started with the budgeting process, you are running into some issues. Here are 5 Common Budgeting Mistakes and how to solve them.

1. Failing to Track your Monthly Expenses

Remember that a budget is simply a plan for your money. And the only way a plan of any kind works is if you can measure the results against the intent of the plan. This works whether you are discussing a schedule for building a house or a weight reduction program. You need to face the reality of how you are spending your money.

I will admit that I am a bit obsessive with tracking spending but I have a system that works for me. Every expense is tracked in Quicken and I also keep tabs of the actuals in an Excel Spreadsheet. I can always tell where we are at any given point in the month. It gives me great peace of mind.

Whatever budgeting system you are using, do not neglect to track your actual expenses as it will give you a good view on how well you did in planning your budget.

2. Preparing a Budget but not using it

This is closely related to item #1 above. You may have done all the preparation work on Quicken, YNAB, or an Excel Spreadsheet. You even did it before the month began and you allocated every dollar to a spending category.

But now, the budget is filed away and the month goes by without you checking how you are doing against the budget. Remember, the budget gives you the boundaries for your spending (like the foul lines on a baseball field that enclose the fair area of play). You should keep an eye on how the actual spending matches against the planned spending.

So I don’t’ suggest you look at your budget every day but at least take snapshot once a week. Get the budget out and see how you are doing in staying on track with your money plan.

3. Failing to Adapt/Change When it is Needed

As you keep an eye on your expenses against your planned spending, you will be able to gain insight into any required adjustments. For example, you may have an unexpected drive out of town and you need to increase the allocation for gasoline. And perhaps your clothing needs are not as high this month as you thought. So you make the adjustment in those categories and balance your budget.

Remember that this is your money and your budget. It is not written in stone so if the conditions of the month change, hold a budget committee meeting and make adjustments as needed.

4. Forgetting to Prioritize the 4 Walls

Your budget is a great tool to help you prioritize your spending. First and foremost you need to take care of your family and yourself.

This means that the 4 walls need to be protected by allocating the spending first those categories. The 4 walls are: food, shelter/utilities, transportation, and clothing. If you take care of those items first, you will be in a better position to deal with the rest of your spending because you would have taken care of your family first.

5. Making it too complicated

The final mistake is making this process of budgeting too complex. The reality is that the concept of budgeting is very simple: lay out all your income side by side with your expected expenses. Then allocate each available dollar to a spending category. That’s it.

You could get bogged down with all the configurations of a tool like Quicken or build an Excel spreadsheet with 20 tabs. Don’t do this. Keep it simple and it will be easier for you to stay with the budgeting process.

Are you making any of these budgeting mistakes? What are some of the challenges you experience in using a monthly budget? Let me know what you think!

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