Friday, March 7, 2014

Where Does Your Money Go? Tips and Tricks for Tracking the Flow

Baby Step #4
Why is it important to take this Baby Step?

Money flows like water. It can gush like a raging river or drip like an annoying leaky faucet at midnight. If we use this precious resource mindlessly, we face drought. However, if we first observe the ebbs and flows, effective management becomes a simple matter of design.

You NEED to know where your money goes in order to manage the flow; via a budget.

I hear some of you now, “Oh no! She said the blasted B word!”. Have no fear, readers, once we've tackled this Baby Step (track your expenses), I'll share another Baby Step that will instruct you on how to craft a beautiful budget-- one that addresses your needs AND wants!


Create an expense tracking system and a routine. I've tracked my expenses for over a decade. It really doesn't require a lot of time - just 10 to 15 minutes a week - and it's easy. Furthermore, this is an educational task you might want to delegate to your kids.

Expense tracking methods include:
  • save all receipts and file them into large envelopes labeled by expense category
  • write each expenditure under a category column in a ledger book
  • write each expenditure in a pocket-sized spiral-bound notebook (carry it with you when you leave home)
  • use a software spreadsheet like Microsoft Excel or Open Office Calc
  • use a personal finance software program such as Microsoft Money or Quicken.
While all of these methods work to track expenses, I use personal finance software (specifically Microsoft Money Premium). Both Microsoft Money and Quicken include a wide range of helpful tools to make personal money management tasks easy. Specific to taking this particular Baby Step, Microsoft Money and Quicken personal finance software:
  • connect to thousands of banks and update your expense transactions automatically
  • automatically categorize your transactions and compare them to your budget
  • show you exactly where your money is flowing using charts, graphs and reports
  • let you see the big picture or drill down to the details
Top Four Tracking Tips:
  1. Make the most of on-line banking. To make tracking your expenses easy and accurate, pay for everything with a check, debit, or credit card. Check your account often and set up as many automated transactions as possible. (Note: If you pay routine expenses by credit card, pay off your account balance in full each month!)

  2. If you must use cash, keep your receipts and enter each transaction into your expense tracking system.

  3. Make it a habit to track your expense transactions regularly. Designate a time weekly for this task and at the end of each month, total the amounts spent by category. It only takes me about 10-15 minutes a week to confirm my automatically downloaded expense transactions and to reconcile my downloaded bank account statements.

  4. Here is a comprehensive list of expense category suggestions. Modify my list to fit your own needs and lifestyle:

    Auto -repairs, gas, insurance, registration, tolls...
    Auto Payments
    Bank Account Fees
    Beauty -hair cuts, manicures, makeup...
    Child Care
    Debt/Loan Payments -create a different account/category for each loan
    Dining Out
    Finance Fees
    Home Improvements/Maintenance/Repairs
    Household Furnishings
    Insurance (Disability)
    Insurance (Health)
    Insurance (Homeowner/Renter)
    Insurance (Life)
    Insurance (Medical)
    Insurance (Personal Liability)
    Liquor/Tobacco -if applicable
    Mass Transportation -bus, train, light rail...
    Medical -everything except health insurance premiums
    Misc -avoid this category as much as possible!
    Mortgage Payments/Rent
    Savings (Education)
    Savings (Emergency Fund)
    Savings (Retirement)
    Savings (Specify Purpose)
    Storage Unit
    Subscriptions, Books, Software
    Taxes (Federal, State, Local)
    Tax Preparation Fees
    Toys (purchase, repair, insure) -includes boats, electronics, bikes, jewelry...
    Utilities (Electric)
    Utilities (Gas)
    Utilities (Internet)
    Utilities (Misc)
    Utilities (Telephone)
    Utilities (Trash)
    Utilities (TV Programing)
    Utilities (Water)
Questions for readers: Where do you think most of your money flows? Does more money flow in than flow out, or visa versa? If you currently track your expenditures, what method do you use?

Mentioned personal finance software can be viewed here:
Quicken Premier 2007
Microsoft Money 2007 Premium
Microsoft Office Excel 2007

Did you miss a step? Want to learn my recipe for success, happiness, and a million dollars? Start here: Baby Steps to Financial Freedom.

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