TL;DR: Tracking helps you identify spending patterns and unearth much deeper issues with your finances than you can imagine. Learn why it is important to track to bring order to your finances.
Tracking expenses is boring, monotonous and takes all the time in this world.
Is this how you feel? Or, have you tracked your expenses at some point in your life and not known how to move forward from there to actually making changes to your finances?
Don’t worry. You are not alone. There are people who track diligently but don’t realise what to do with all the information they have gathered about their money. There are others who don’t have time or patience to track. And, then there are others who think tracking their money is extremely restrictive, guilt-inducing and just a negative experience they don’t want to go through.
Whichever of these groups you may belong to, here’s what you should know:
– Tracking is the most crucial step in bringing order to your finances.
– Tracking with a purpose is what makes a difference to your finances.
– Tracking need not be as tedious as you imagine it to be.
– Tracking is not what’s negative. It’s your money mindset that may be negative.
Let’s start with the basics now, why should you track?
Most people may be earning a good salary, may not be reckless spenders, maybe saving some money and even keeping an eye on their monthly balances, but still, are frustrated that their money doesn’t behave the way they want it to. Why is that?
Earning a good salary is not equal to being good with money
We’ve read and heard about this too often! How even the rich (like Johnny Depp, for instance) struggle with their finances and live paycheck to paycheck. According to a study by LendingTree, 44% millennials in America alone who earn between $100,000 and $149,000 still live paycheck to paycheck. So, it’s not just about making enough and more money, it’s about knowing what your money is doing.
Not spending recklessly is not equal to being good with money
You may not be someone who spends mindlessly. You may consider all your options before buying something. But making good purchases or getting the most value for your deals does not mean that you’ve your money under control.
You need to look at how your spending sits with your bigger financial picture and analyse whether your expenses are in line with your real financial goals. For that, you just can’t get away with good spending habits.
Saving some money is not equal to being good with money
You may have some money put away, but still, you may not feel broke or stressed when it comes to money. And, that’s because you may not be setting aside enough money for the present and are living a life that’s too frugal. Or, you may not know what you’ve put aside your savings for. Or, you may not know how to make your savings grow. All these problems arise when you’re just looking at one aspect of your finances.
To be better at money, you need to get a full picture of your finances and how your spending and saving is affecting it, and how you can change your money habits to achieve your money goals.
Knowing your monthly balances is not equal to being good with money
I plead guilty to this. Almost every week, I used to check my current account balance and then freak out wondering why it was so less! I didn’t care to look at where I spend my money or what payments came in. Maybe, I had made more money that month or I had made a big long-term payment that month. I would ignore all of this and just look at that balance and get stressed without knowing anything more.
Your balance is just a number, it doesn’t tell you the story of your money. And, without knowing your money story, you’re never going to find out how to rewrite it to a happier, stress-free one.
Why should you track your money?
Tracking your money is the most crucial step in managing your money. Here’s why you need to track:
To know where your money goes
Knowledge is the most important asset you can have when you’re about to make a change. Knowing what’s going wrong and where things need to be fixed is what will put you on the right track towards mastering your money.
Tracking your money will make you honest with yourself about how you spend and save. You’re building a valuable source of data that will help you redesign your finances and life in order to meet your life goals. So being financially aware is one of the main positive outcomes of tracking.
Top tip: Confused where to start? Bring your transaction data from your bank, spreadsheets or other budgeting apps to Wallet through Imports on the Web App.
To identify spending patterns and problem areas
Once you’ve enough data about your money (anywhere more than two weeks is a good starting point), you can look at it to identify your spending patterns and where you may be overspending or spending unnecessarily. Maybe you have some amount of money left over from your paycheck every month after all your expenses, but you may not be saving it just because you don’t physically move that money to your savings account. You can spot such information when you look at your data.
Or, you may know you spend a lot of money eating out, but only when you see the real dollar amount would you realise how much of your paycheck you’re spending on this. An app like Wallet will visualise your data in simple charts and reports that you can easily understand and help make spotting these patterns easier. Only when you identify your problems areas will you be able to think of how to tackle them.
To align your money with your financial goals
Once you’ve identified your spending patterns and problem areas, you’ll get a better picture of whether how you handle your money is in line with your real goals. Say you want to buy a house in the next five years and want to have $25,000 saved by then. This means you’ll have to put aside around $420 every month.
Depending on your goals you can then reverse engineer your money and its usage. If you see that even after cutting down on your spending, you’re not able to save much, then you may have to check out your income and think of ways to increase it. By tracking, you’ll be able to, thus, check if you’re spending and saving your money on and for things that you really want.
To know your real priorities
A lot of us have financial goals which are inspired by others around us. Tracking your money will hold up a mirror to what you’re exactly spending on and saving for. On Wallet, you can even assign different emotions to each of your transactions and see how your money really makes you feel.
Why do this? Sometimes you may have spent a lot of money on a vacation or a night out with your partner, but these experiences made you happy. And, sometimes it can be a small bank fee that makes you feel taken advantage of. When you rate your records with your emotions, you start noticing what your real priorities in life are and what are those things that really make you happy. You can then even rethink your goals based on these findings and design a happier life for yourself.
Top tip: Assign emotions to your transactions and find out how your money really makes you feel. Try out our new feature Was It Worth It?
To monitor your progress
Tracking your money also helps you quantify and keep track of your progress towards your goals. Only if you track will you know whether you’re really making positive changes over time or not.
When you monitor how your spending and saving is changing over time, you can keep yourself motivated with small wins. If you see that there are not many changes, you can dig deeper to identify bigger problems with your money mindset and targets. Maybe your goals were unrealistic to start with or your money mindset needs to change.
Tracking, thus, puts you in touch with the reality of your money habits and helps you set realistic goals and make long-lasting changes in your finances.
Over to you
Do you track your money? Has tracking helped you change your spending habits or money mindset? Do let us know in the comments section below.