Many financial advisers like to suggest that a budget is absolutely essential for every adult who cares about their money (that should be all of you). However, I’m beginning to think that this only paints half the picture.
Setting a budget is all well and good, but far too many people do as much and still suffer financial issues.
Why? I think it’s because they’re not actively tracking their money as it comes in and goes out. Tracking your money is an essential step when it comes to improving your financial life.
Where budgets fall short
Let me reiterate that I’m still a fan of creating a budget and think it’s an absolute must for everyone.
However, without tracking what you spend, your budget becomes impotent. It would be like creating a diet for yourself and never bothering to actually keep track of what you’re eating or stepping on a scale.
How would you possibly know if your diet was working? At least in that analogy, you may notice weight gain. With your budget, you might not know how far you’re straying from your plan until you overdraw on your account.
The importance of tracking your finances
So the main benefit to tracking your finances is that it allows you to adjust your budget and/or behaviour as necessary.
You may find that you’re spending far more on eating out than you had planned on. Then you obviously need to change your behaviour. However, you may also discover that you actually need about $20 less a month for petrol than you thought. Now you can adjust your budget by potentially putting that money toward something else like, say, your savings.
Know what you’re bringing in
Sadly, a lot of people create a budget and are vigilant about tracking how much they’re actually spending, but miss a very important component: how much you bring in.
To be successful with your finances, you must always keep an eye on how much money you’re putting into the bank on a regular basis.
This is easy to take for granted as most of us know exactly how much we make a year and how much that breaks down to with each pay check. But if your work entails bonuses or tips, it’s important you account for this each month.
Likewise, something like new taxes may be taking a bite out of your check without you accounting for it. This type of ignorance will not be blissful for long.
Lastly, your company may not always issue you the right amount. Mistakes happen. So it’s essential that you keep a practice of tracking how much you bring in and ensuring you’re being compensated with the right amount.
How to track your finances
Like setting a budget, tracking your finances is largely a matter of personal preference. It’s usually not an especially fun activity, so if doing it your own way works, so long as it’s productive, go for it.
However, there’s one piece of advice that’s advisable for most people: handle this process at least once a week. It doesn’t take long and even 15 minutes can be enough to help you reconcile any issues with the previous week and make plans for the next.
For example, if you realise you spent $50 more than you should have on groceries last week, plan to save that $50 next week or look for ways to do it over the following two. This is a much better situation to be in than finding out after a month that you made this mistake 3 times and now are $150 past your spending limit.
Obviously, this is also a great way to catch any problems that weren’t your fault. You might find that your employer underpaid you or a credit card overcharged you. Whatever the issue, catch it early and you’ll face far fewer problems and the frustration that comes with them.
To reiterate: you absolutely must set a budget for yourself.
But don’t treat it like so many people do their New Year’s Resolutions: putting them on paper and then allowing them to collect dust.
Instead, make tracking your finances a weekly activity where you measure how well you’re following your budget and what more you could do to refine it.
Do you track your finances closely? Do you have any tips to SHARE?