This post is part of a 13 money resolutions for 2013 series. You can check the first post for an updated list of the following ones.
Already 12 money resolutions that we explored together, and I still haven’t said the B word. So I’ll say it. Please spreadsheet enthusiasts don’t throw stones at me. I hate budgets. There, it’s out. I feel lighter now that I confessed. There is just something about keeping track of every little expense that annoys me greatly.
BUT I track my money. I know where it goes, roughly. I am like those annoying slim models who claim they can eat what they want and not get fat. They lie. They just know when it is time to stop. If they have burgers and fries, the next day they will have soup and steamed vegetables. I am the same with money. I know when I spend a bit too much and I rectify. If you don’t, you need to start tracking your money.
Make a budget
I can lay down the basics here, but since I don’t really practice what I preach, I think you’ll be in better hands with other bloggers for a budget makeover.
In order to start a budget, you have to put in one column everything you spend and on the other one everything you earn.
Earnings are pretty easy, there is
- Extra income
- Gifts received…
Expenses are a bit more complicated since there are monthly expenses and other yearly and quarterly ones that you need to reduce to a monthly amount. You have to include
- Rent or mortgage
- Car (payment, insurance, gas, repairs)
- Loans and debt payments
- Eating out
- Phone, internet plans
- Holidays and travel
- Yearly or periodic expenses (house insurance, Christmas…)
- Unexpected expenses (car breaks down, you get sick…)
Everything you spend. Hopefully when you deduce expenses from earnings there is some money left. If not, it is time to make some cuts.
Track your goals
I have installed a great tool on this site called Planwise. You can track your financial goals and see how long it will take you to save for a downpayment, pay off debt… And what impact will a change in your finances have on your goals. Say you get a raise, or have a new addition to the family, you can see how much quicker or longer your goals will take to achieve. Pretty neat!
This is a way to stay motivated, and keep a constant eye on your goals. Planwise will also tell you how much money you will have if you save a certain amount for a certain time, and how lowering that monthly payment can impact your final nest egg.
In short, by tracking your goals closely, there is a great chance that you will achieve them quicker.
Track your net worth
This I do pretty well. I have a file where I track my net worth every month. I write down all my assets
- (I don’t put car or my motorcycle but some people do)
- Cash accounts
- Retirement accounts
- Savings accounts
- Money people owe me for a work that I have already done.
And then all liabilities
- Balance of mortgage
- balance of loans
- credit card balances
- other people I may owe money to (namely, bank of mum, but the current balance is $0).
and determine my net worth. It is quite complicated since I have assets in different countries, and currencies fluctuate but I am mainly interested in one thing: see this amount raise every month, or have a very good excuse for it.
When I bought my motorcycle for example, my cash account melted and since the bike is not part of my net worth, it was normal to have money missing. A dip in the stock market or house prices can also affect your net worth negatively.
Define your plan
You certainly have a plan in life, be it retire with millions in the bank or put five kids through college, or anything else. Cut your plan in short, medium and long term goals, to make sure you take all the right steps towards it.
When I wanted to retire early, I made a plan to save aggressively and live lean for the next few years. The original plan was to retire at age 40. No plan is set in stone, so after a few years, I realized that I didn’t need as much as I thought and passive income was kicking in, so I could retire at 29.
Your life plan deserves a yearly or quarterly review. Are you on track? What worked well and what didn’t? Do you still want to achieve that goal? What would you rather have?
Tracking those aspects of your financial life help you stay on target and progress quickly towards your goals.
What else are you tracking?