When I was young, newly married and somewhat feckless, it never occurred to me to track finances. My wife and I got paid every two weeks, we paid our expenses out of that money and if there was anything left over, we would treat ourselves to a night on the town.
As I grew older and children began to arrive, I realized that if I wanted to keep control of our spending and manage our debt, I needed to track finances–whether I wanted to or not.
Track finances is where it starts
You simply can’t manage your money unless you first track finances to see what your spending and what you’re spending it on. You can do this the old school way with just a notebook and a pen. However, these days there are a number of personal finance programs available that can make it much easier to track finances.
Develop a budget
Once you know how much you’re spending and for what, you can develop a workable budget. Again, you can actually do it with a piece of paper, or in a pencil. However, my advice would be to get a program such as Buddi or the Mac or You Need A Budget (YAB) for Windows®-based computers.
The advantage of one of these personal-finance programs is that they have already created a list of things you might spend money on–some of which might not have ever occurred to you. This means all you have to do is start filling in the blanks–you my money you spend on each of the applicable categories. For example, you would fill in your housing costs, including mortgage or rent and utilities, how much you spend on entertainment, insurance, car payments and etc. This has proved to be a shocking experience for some people when they learn how much more they have been spending than the actually earn or why some of their spending just doesn’t make much sense.
Continue to track finances
Learning how much you’re spending and turning it into a budget is only the first step towards good financial management. Step 2 is to continue to track finances so you can see how much you’re spending vs. how much you budgeted for the item. If you’re spending less than the budgeted amount, give yourself a pat on the back. There will undoubtedly be some categories where you are spending more than you have budgeted and you have to make changes accordingly. As an example of this, suppose you have budgeted $100 a month for entertainment and found you are spending twice that much. In this case you would have to cut your entertainment in half to get back on budget.
Set goals
When you create a budget, be sure to include your short-term and long-term goals. Most people find the simply can’t stay on a budget unless they see they’re starting to achieve their worthwhile goals.