Use Non-Investment Options to Improve Your Finances
Every day the media bombards you with information about the stock
market, leading economic indicators, and other financial news. Although
all this info may be important to somebody somewhere, you want to make
the most of the money you have that’s not invested in the market. Your
checkbook, not the Dow or NASDAQ, is the bottom line you deal with every
day. By focusing on your checkbook, you can improve your bottom line.
Moreover, gaining control of your personal finances can ensure that you have
money to invest in the first place.
Devoting time and effort to organizing and prioritizing your spending gives
you better control of your money, helps you reach your goals, and provides
peace of mind during uncertain times: You know where your money is going
and you stay in control.
Keep Track of Your Money
If you’re like most people, you don’t know where all your money goes. You
have a lot of ways to buy things these days, from debit cards and credit cards
to paper checks and cash. With online access to your bank account, you may
not even balance your checkbook!
Having all these ways to spend makes it hard to keep track of your spending
each month. But if you’re going to take charge of your finances, you need to
know. Money that disappears is lost forever and can’t be saved or invested or
used to help make the car payment.
You have plenty of options for tracking your money, ranging from low-tech to
high-tech. Whatever option you choose, you need to track your spending for
a full month. Don’t try to recreate all your spending from a previous month
because you won’t recall everything you spent.
Write it all down
One option to keep track of your spending is to use good old 3-x-5-inch index
cards to record spending:
- List all your monthly automatic drafts from your bank account on card 1
(mortgage payment, car payment, and so on)
- List all your regular monthly checks on card 2 (utilities, cable, phone,
and so on)
- List all your other spending on card 3, including purchases at the grocery
store, restaurant meals, gasoline, a jolt of caffeine from the coffee
shop, all those items from big box stores and warehouse clubs, and so
on. Purchases made without even thinking about them are the ones that
really add up.
Both you and your spouse or partner must track purchases if you’re going to
get a real handle on your spending.
Many online tools can also help you track your spending. You can find examples
of these tools at www·mint·com and www·mvelopes·com. Quicken and
Microsoft Money have software that you can use for this same purpose.
Categorize and discuss your results
At the end of the month, take your index cards (or spreadsheets) and sort
your purchases into categories. You can choose to have a few or many categories,
but the more specific you are, the better you’ll be able to tell where
your money is going. You’ll likely be surprised at the totals you see for some
categories.
You can make sorting your expenses pay off more easily by dividing items into
wants and needs. Keeping your priorities in mind can help you resist the siren
song of around-the-clock advertising.
Now that you can see where the money is going, you and your spouse or
partner can decide whether your spending is in line with your priorities. This
may well require a heart-to-heart conversation about what’s truly important.
You both have to recognize that your spending (and saving) should be
brought in line with your goals. This conversation may not be easy, but focus
on the long-term benefit of the exercise, keeping in mind the positive impact
it’ll have on your financial well-being.
