Most of us want to save money, develop better financial habits, and usually spend less. That can be easy to say, and more difficult to do, because changing any part of your behavior is something that takes time, dedication, and discipline. One of the first steps to improving your financial situation is understanding it, and that means tracking your actions. But, you also have to learn how to use your budgeting data to make detailed plans for the future, and to learn from experiences so that you don’t make the same financial mistakes twice.
Tracking Your Financial Actions
You can track your finances using almost anything. A sheet of paper, an excel document, an app provided by your bank, or any of a number of personal finance apps. It’s usually best to start out simple, and get into good habits of tracking your expenses, before you spend money on doing so. Start with paper or an Excel document (You can use Excel for free via Google Drive or Microsoft OneDrive).
Creating a Budget – Creating a budget means writing down your income (before and after taxes) and then detracting each of your bills, your car payments, student loan or title loan payments, mortgage, etc.. From there, you can add in your groceries, money you spend on eating out, beverages, transportation, insurance, etc. Microsoft offers a number of free budget templates for Excel here.
Once you’ve subtracted everything from your income, you can see how much you have left at the end of the month. It’s also where you can start seeing how and where you spend money every month.
Keeping Track of Expenses – Taking the time to enter new costs into the appropriate categories on your budget sheet every night before bed will help you to figure out how and where you’re spending money. Remembering small expenses like a quick Uber ride or a stop for an energy drink on your way to work can be difficult, so get into the habit of keeping receipts. This will allow you to see exactly where your cash is going, and after a few months, you’ll be able to see the average amount of your money going to each item on your budget. Adding up your daily finances will only take a few minutes once you get used to it, but like any habit, it can be difficult to get into. Consider setting a recurring alarm on your phone to remind you to do so after you get home from work.
Setting a Budget – Once you know what you’re spending and where, it’s easy to decide what you have to spend, and what you don’t have to spend. Part of this is based on learning. You may want to order out at lunch, but packing a sandwich to bring with you could save you $12 or more. Deciding how much you can spend based on your previous expenditure will help you to save money. Budgeting specific amounts for specific things, like $50 a month for shopping, will also help you to make better choices when spending money.
Tracking Investments – Investments aren’t always good investments. In fact, many of them can lose you money. You can apply the same process of writing down expenses, and tracking value earned or lost over time. Whether your investment is a ‘sure thing’ stock, or saving money in a CD, tracking your investments is important.
Learning from Experience
Experience is the best teacher, whether you’re making small mistakes with your money, or big ones. Once you know what can go wrong, it’s difficult to make the same mistakes again.
Credit Cards – Many of us go a bit wild with our first credit card, in fact, data shows that the average Californian has $7,217 of credit card debt. If you’re in debt, don’t worry, you can and will get out of it. Scrimping in other places, paying off smaller bills first, re-consolidating, or requesting a better rate on your interest can all pay off long term. You’ll also want to skip minimum payments and put as much money as possible towards the credit card, even if it means skipping adding to your savings. Once you get out from under interest heavy payments, you’ll be able to invest much more easily.
Buying Something You Can’t Afford – Rent to own and 0% APR financing for the first 6 months do seem so unattractive, until 3 years down the road when you’re still paying $100 or $500 a month for a fancy TV or car that you didn’t even need. Making smart choices with purchases means saving up and buying within or under your means whenever possible. For example, if you’re buying a rent to own TV, you’re likely paying double consumer retail for the privilege of having it in your home a little bit sooner. What can you do if you’ve made one of these mistakes? If you’re less than half paid off on a rent to own item, return it. If you’re more than half, focus on paying off the smallest items first. It’s difficult to choose for a car, but consider trading it in for something more cost effective. Just check the book value and make sure you’re getting a good deal. Why is this important? Cars depreciate fairly quickly in the first few years, and if your car is more than 8 years old, it could be worth less than the remaining lien. If you’re going to get a good deal, you have to have a car that is only one to three years old, and be able to trade it in to completely cover what you still owe, plus add a sizeable chunk towards a new, more affordable vehicle.
Other mistakes, like not starting a savings account, are harder to track, but you will notice when you look at your savings. If you’ve been holding off on starting a savings account because you don’t think the $40 or $100 a month you could contribute will matter, stop. Even a small monthly contribution will add up, and $100 a month in 5 years is over $6,000. You’ll be glad you started now in 5 years.
Keeping track of your financial actions allows you to make better decisions for the future, whether those decisions are deciding not to spend $10 a day on lunch, or deciding to start saving are completely up to you.
