Once a week I have a date with my money. And no, I’m not completely mad.
You see, dating my money has transformed the management of my personal finances in ways I never imagined.
But before I get to those benefits, let me explain how my money dates work.
It’s quick and simple. Rain or shine, my money and I sit down eye to eye every Saturday morning, and a process of close romantic scrutiny begins in Microsoft Excel. I log on to my online banking and investments and I record all the new financial movements for that week under categories on my Excel tracker. For example, I’ll log my expenditure at supermarkets under ‘Groceries’, my income from renting rooms under ‘Rental Income’, and so on.
Who said romance was dead, eh?
This process takes about 20 minutes in total, depending on how financially active I have been in a given week. And whilst that may sound like too long a date with my money, I have come to see this routine as vital in my Hustle Escape journey.
Whether you’re on a road to early financial independence or not, I’d recommend anyone serious about managing their personal finances for the better considers setting something similar up for tracking their net worth. It’s Personal Finance 101, but with a whole raft of potential benefits if you’re new to it.
#1: Seeing everything in one place
A holistic view of your live financial situation is an extremely powerful tool for decision making. Having all your financial data in one tracker allows you to have a complete picture of your latest financial circumstances. This means you will not only develop a better understanding of your overall net worth, but also of the interdependencies between the different buckets that make up your net worth.
This overarching view of your net worth is absolutely crucial in the journey to early financial independence. With a well-designed tracker you can make substantial gains in your net worth over the course of this journey.
#2: Identifying trends and opportunities
The complete view of your personal finances that a tracker provides also gives a great overview for identifying new insights about your money. In an era of impulsivity, quantifying these trends and identifying waste and non-value added spend can create serious saving opportunities.
I track my expenditure, for example, in categories like Groceries, Entertainment, Utilities, Insurance, Car Maintenance and Fuel. This type of approach allows you to take a high-level view of how expenditure is trending across categories and flags potential opportunities in areas of non-value added spending.
You can see if your utilities bills have climbed significantly versus the previous year. You can assess how your fuel costs have evolved since you changed job location. You can track your insurance premiums and go after cheaper renewals. A consolidated view of your personal finances presents a plethora of opportunities you may not have otherwise gone after.
#3: Early warning signal
As well as providing positive insights on where future savings and income opportunities may lie, a proper system for tracking your finances can also act as a mechanism to flag financial risks before they become more damaging than they need to be.
Take, for example, promotional discount periods. Many regular expenses, like mobile phone contract costs, internet fees and banking fees, now offer introductory discounts for a fixed period, before the cost of those items than defaults to a standard higher rate. Having a tracker for monitoring these periodic costs allows you to quickly identify a spike in these costs and get in touch with the provider to negotiate a new deal or discount period.
#4: Diarising your saving habit
It’s easy to be savvy for a month or so, but a permanent approach to saving often requires a mind-set shift. By having a regular date with your money and properly tracking your finances, the routine and structure of repeating this exercise can begin to reinforce positive saving behaviours.
Perhaps you may just give that impulse purchase at the supermarket some deeper consideration. With your new knowledge of your personal finances, perhaps instead of picking it up and putting it in your basket, you may just ask yourself whether you really need it given the financial impact on your progress.
#5: Providing a source of inspiration
Quality tracking of your financials can also serve to reaffirm the success stories that you’ve already borne out in your personal finances. These might be areas that you hadn’t considered to be that significant over the longer term, but that positive historic trending have flagged otherwise. Such instances can provide the inspiration needed to double down and drive further progress.
Reflecting on sustained overall momentum in financial progress is also a useful source of inspiration when the going gets tough. My personal finance tracker, for example, has historical data going back several years and so reflecting on the growth over this time horizon provides me with continued motivation and inspiration for the longer-term journey to financial independence.
So what are you waiting for?
If you’re not already tracking your income and expenditure, I highly recommend doing so. You will in all likelihood be financially better off for it in the long run.
How often you go on a date with your money depends on your circumstances and what works for you. As a general rule I recommend updating and assessing things at least once a month. Less frequent than that and it will require a big administrative catch up – that or the level of detail just won’t be enough to get the most benefit.