Follow the Money

So many elements of our financial lives are completely out of our control.

Control What You Can. We have no say over stock market fluctuations and little over the prices we pay for gas and groceries every week. However, one thing we can control is our ability to improve our awareness of our finances by tracking what we spend.

Don’t Spend More Than You Make. Realistically, if you don’t track where your money goes, you could end up regularly spending more than you make which means you could also be forced to reach for high-interest credit cards to bridge the stressful gap between paychecks.

“You have to know where your money is going or you will never have control of your financial life no matter how much money you make,” says Betsy Hutchins, CFP, owner of Forward Financial Planning, a fee-only wealth management firm in Germantown, Tennessee.

Knowledge is Power

When Hutchins meets with clients for the first time, she has them review their spending habits. She says this is often an eye-opener for those who don’t regularly do so, “but once they see where the money is going, it becomes easier to make adjustments.”

Track Your Spending. Hutchins encourages clients to use a tracking method – whether that’s an app on a smartphone or a legal pad where you physically jot down every expenditure at the end of a day. “It does not have to be fancy,” she explains, “it just needs to be captured every day.”

Take Control. The good news about deciding to focus on something you can control is that it can often help you take back control of other parts of your life, too. And honestly, when you have a better idea of where your money is going it can lessen your stress and generally make you feel better. And just as important, it can also help you reign in spending.

“Many times,” Hutchins explains, “the simple act of recording what, when, and where your money is going creates the necessary momentum to make a change.”

How to Track Your Spending

If you are new to figuring out where your money goes, it’s a good idea to take a look back at one to two month’s worth of credit card and checking account statements to see:

• How much income you bring home after taxes and other deductions
• How much money you typically spend in a month

Ideally, you should spend less than you make. If that isn’t happening, it’s time to make adjustments.

Review Regularly

When working on money matters, it’s smart to set aside a specific amount of time in a place where you won’t be interrupted so you can focus on the task at hand. If you use electronic banking, make sure to go carefully line by line through your records to ensure accuracy and to make yourself fully aware of every single swipe, tap, and touchless transaction.

Embrace Technology 

Certified financial planner Daniel E. Milks, who is co-founder of Fiduciary Organization (FIDO), says that not only is tracking spending fundamental to understanding where your money is going, but it also ensures that your spending truly aligns with your goals and priorities.

Mobile Apps. When looking back over your expenses for the first time, he suggests that consumers keep it simple, opting for tools and apps such as Mint or YNAB, or even just a basic computer spreadsheet. For those who prefer the convenience of automation, linking checking and savings accounts to a budgeting app can often simplify the process, he says.

Cut Wasteful Spending. “The goal is to regularly review spending patterns, identify areas of waste, and make intentional decisions about redirecting money toward savings or debt repayment,” he notes. “Tracking also helps uncover ‘invisible’ expenses, like forgotten subscriptions, which can be eliminated to increase cash flow.”

Take Action

If you notice a pattern of spending more than you earn, it’s time to tackle some of those forgotten expenditures that are being deducted from your checking account every month.

Start With Low-Hanging Fruit. Ask yourself if you need six streaming subscriptions or if could you cut that number in half to spend less. Food is also a place where many people tend to overspend and can cut back. What might that look like? Any easy way to spend less is to make more meals at home and eat out less often. If you miss the social aspects of dining out, you could organize a supper club or potluck with friends and neighbors.

 

Information provided by Jean Chatzky via Savvy Money.