Managing Money
12 Nov 2008
I’m kicking off a series on managing your money. It’s something I’ve wanted to do for a while and timely given the current economic client.
First things first. Am I even qualified to attempt something like this? Well maybe, depending on how you measure. I certainly don’t drive a fancy car or have great clothes or expensive hobbies (well, I there was the airplane thing a while back). But I also don’t have a few other things, like debt, money worries, creditors calling or a mortgage and my money advisor tells me I’m very well situated for retirement. While I’m far from happy with the current economy, I’m also not losing a lot of sleep over it either. OK, so maybe I’ve learned a thing or two about managing money.
The interesting thing about money is how people treat it. A good friend of mine (who is holds a PhD in Finance) says there are two components to money. The logical part and the emotional part. Logically, we know it’s not sound to spend $3.00 on a cup of coffee every morning, but emotionally, we enjoy it and maybe even feel we’re entitled to it. (Interestingly, Starbucks reported a 97% drop in profit during its fiscal 4th quarter – Ouch!)
Now I’m not here to bash folks about what they spend their money on, although frankly, there are times when I’m left scratching my head about the choices others make. However, even a cursory look at how we spend money can have a huge impact.
OK, so let’s get started.
Rule #1: You must measure your performance if you expect to improve it.
It’s always amazing to me that people don’t really know how much money they have or how they spend it. Money is one of the most important aspects of your life. Without it you don’t eat, drive cars, go to movies, donate to charities or pretty much anything else in life. It’s important and managing it needs to be a top priority.
Today there are free or very inexpensive software packages/services to track your expenses. I started out with a program called “Money Counts” way back in 1993 and have kept electronic records ever since. Today, I use Microsoft Money which I bought at Wallmart for $20 years ago. Other options include Quicken Online (which is free) and Mvelopes. Use what you like but use it.
I have a weekly ritual where I enter all the bills and income checks (the few I get that is). It takes a few minutes and I always know what my balances are and where I stand on my budget for the month. It’s very important to develop a regular habit of entering your data into the program. I know it’s a chore, but this single habit will do more to save you money than you know. Trust me on this.
Don’t worry about all the categories or tracking every penny. Just get started, use the categories that are already present in the software and get going. One place where people trip up is that they try to track cash. Personally, I don’t bother. I don’t spend much cash-wise and I’ll share some tips about how I do this in another article. I have a category called petty-cash which is just whatever I’ve withdrawn from the ATM. By keeping my cash expenditures small, it is not necessary to track it closely.
Once you have a few months of data on your spending, it can be used to analyze where your money goes and how you might reduce your spending. If you’re entering your data regularly, it won’t be long before you’ll start noticing patterns. But for now, just get started tracking.
I know this sounds like a chore but I’ll tell you straight that I actually enjoy entering the data, balancing the check book and reading the reports. Once you see how tracking and reducing your spending improves your quality of life, you won’t go back.