If I had to reduce my principles on finances and money to a single expression, I’d put it this way: Where Your Money Goes is Where It Grows. Or to spin it more negatively, where your money goes might just be where it dies too.
Most American don’t take much interest in their money and finances, at least in terms of their savings. “Thirty-four percent of workers have no savings whatsoever; another 35 percent have less than $1,000; of the remaining 31 percent, less than half have more than $10,000. Among older workers between 50 and 55, the median savings is $8,000,” according to an article in Inc on retirement. The stark reality is that most Americans have little or no savings.
People should expect more out of their money. The idea is that if you don’t know where your money is and what you are doing with it, then it’s really hard to expect much of your money. If you spend all your money and never save or invest, then your money doesn’t really work for you. But if you spend less than you earn and invest as much as you can, then your money becomes a partner. Your money begets more money.
Obviously different people have different life situations, but I believe everyone should strive for some form of financial security. That translates to savings. If you are following some basic common sense principles of personal finance, which we covered in a previous post, then you know that you should spend less than you earn, avoid (or pay down) debt, save, and invest in a diversified, low cost portfolio.
The gap I see in these simple principles is developing an awareness of your money, by which I mean tracking your money and having a budget.
For me, the answer to most things I’m trying to figure out is tracking it. I’m admittedly a pretty obsessive tracker, including time, productivity and health. Finances is no different in the role of tracking. Fortunately, most of finances and banking have gone digital, and there is a plethora of really great tools and apps to help you track, budget, save and invest.
Doubly awesome, if you mostly are using digital payments and banks online, there is a good chance most of your tranaction history is already being tracked. You just need to take ownership over the data, process it, and then start to leverage it.
In this multipart series on personal finance tracking, we have been looking at the principles of good financial behavior, how to track your finances (current post), and how to set trackable goals for saving and investing.
In this post, I want to look at how to track your money. I strongly believe that tracking of your money can help you gain an awareness of where you money goes. Then with a bit of budgeting you can set targets and build towards your savings and investments.
In the first part, we will review several great tools to track your money. Some are completely passive, though you’ll need to occasionally recategorize certain transactions. Other tools require you to actively log each and every expense, which while taking more effort, carry the benefit of greater awareness. Good money tracking can even be and sometimes should be done in a spreadsheet too. So we will look at some basic ways to visualize your financial data using a spreadsheet or existing tools.
Ultimately, the goal of tracking your money, creating a budget, and establishing good habits is to help you reach your goals. With tracking you can position yourself for the next stage of your financial life: saving and investing (future topic).