Track your finances for the most success.
You wouldn’t start a road trip with no idea of where you were going or how to get there—but most of us handle our finances that way. We set up a checking account, deposit our paychecks, and then spend that money with little or no thought to how and where we’re spending it.
Sure, some of us set up a budget, but a budget only works if we adhere to it—and how do you know if you’re adhering to your budget? This is where financial tracking comes into play.
What is Financial Tracking?
Financial tracking is a process for monitoring cash flow. Financial tracking allows you to not only monitor income and expenses, but to track how and where you are spending your money. Financial tracking is a critical component to managing money because it gives you the big picture and creates a structure for spending.
Financial tracking means keeping track of every purchase you make. It means saving receipts and categorizing where your money goes. Each transaction falls into a certain category such as utilities, entertainment, education, etc. Some of these categories are necessities (such as rent) whereas others are not (movies). By tracking your spending, you can make adjustments so that you are able to live within your means and save more money.
How Does Financial Tracking Work?
Financial tracking is not rocket science, although it can feel that way for the uninitiated. It can be a little daunting to get started, but once you have a system in place, it’s usually easy to maintain it. In fact, financial planners like to joke, “Once you track, you’ll never go back.”
Financial tracking doesn’t have to be complicated to be effective. It’s simply a matter of devising categories for spending and then allocating each purchase to a certain category.
There are many tools available for financial tracking:
- Financial tracking software: There are many different software programs available for financial tracking, but Quicken and Quickbooks are probably the most popular. These simple programs allow you to download your bank statements directly into the program and categorize your spending.
- Online tracking: There are several online programs designed to help you track finances, including mint.com. These function similarly to software and allow you to enter your financial information and categorize your spending.
- Do it yourself: The old-fashioned, do-it-yourself method works just fine, as long as you do it. You can create an Excel spreadsheet or simply put pen to paper. Create the categories and manually enter each transaction you make.
Benefits of Tracking Finances
Financial tracking provides many benefits. First and foremost, financial tracking helps you to develop awareness about your finances and to begin to spend more consciously. In fact, most people who start tracking their finances will immediately begin spending less because they suddenly become acutely aware of frivolous spending.
In addition, financial tracking offers many other benefits:
Most important—this simple financial practice will provide you with a sense of financial control and confidence and decrease your financial stress. Give it a try and watch your finances improve as a result!