Continuing our series of articles with down-to-earth advice for down-to-earth people, this week we’d like to tackle another topic that has a lot of needlessly complicated answers and help simplify things.
Where is your money?
A quick Google search of “keeping track of your money” reveals 4.77 million results – most of which point to apps and spreadsheets and multi-step processes that are, I’m sure, all guaranteed to settle your financial woes. For as little as free or as much as $4.99 (or more), each of these apps promises to provide easy to use interfaces that give you more insight into your money.
(Because of our lack of faith in these products and their prices, we are actively choosing not to link to them. But don’t worry, we have a better solution – just keep reading)
Yet people have been keeping track of their finances for millennia without the benefit of apps and smartphones – usually more accurately. Robert Fulghum tells a story of a calculator company once proposed a math-off; one man with a calculator challenged a man with an abacus to see who could answer more equations faster.
The calculator man won the race, but he made more mistakes. The man with the abacus was more accurate.
The point of this story is not to convince you to run out and buy an abacus (although we wouldn’t stop you), but that sometimes the simple, analog way of doing something is better. When it comes to tracking your finances, we wholeheartedly endorse what we call the “Receipts and Notebook Method.”
It’s very simple, it takes almost no energy, and while you can do it for free, we recommend laying out the mighty sum of $1 to buy a notebook of some kind that is dedicated to just one thing: tracking your money.
Here’s how it works:
Start by logging onto your bank account online and getting out your notebook. Write down how much money you have in the bank, rounded down to the nearest dollar; if you have $198.75 in the bank, write down $198. If you have $209.97, write down $209.
Next, whenever you spend money, take the receipt and put it in a designated pocket that will hold NOTHING ELSE but the receipts you collect. Given that the majority of the population still follows the physically harmful practice of keeping their wallet in their back pocket (typically the back-right pocket), we recommend the back-left pocket for your receipts.
At least once a week (preferably two or three times a week), sit down and take all those receipts out of your back-left pocket, unfold them, and lay them in front of you in chronological order. Get out that notebook and write down the date, the place, and the amount spent rounded up to the next dollar. Did you spend $1.98? Write down $2.00. What if you spent $3.04? Write it down as $4.00.
(see where we’re going with this?)
Subtract all of your purchases from that starting total at the top of the page and write down the total.
At the end of the month, log into your bank account and make sure that you have as much or more money actually in your account than you have written in your notebook, and adjust your total to match.
Does this seem way too simple and easy? It is – but that’s why it works. People tend to try and complicate finances by adding more variables and technology than necessary, thinking that it will help them get ahead, but it doesn’t.
Does this seem like it takes time and energy? It does – but that’s why it works. People lose track of their money because they’re in too much of a hurry to bother remembering what they spent and where. Most people go through life with a “I think I’ve got enough to cover this” attitude, but this lack of attention to detail is part of the reason why more than a million people file for bankruptcy every year.
We’d also like to point out the philosophy of rounding up when spending, and rounding down when saving. There is an app or two out there that will do this for you, but you can do it for yourself for free (and save yourself the hassle of opening up another bank account). The reason for it is both practical and psychological – you’re training yourself to think that you have less money than you really do, which will lead to more caution in spending and greater care when making buying decisions. It also adds up over time, to the point where you’ll end up with an additional $10 to $20 every month, which at least a trip to the movies or a couple of drinks at your favorite pub.
Do this for a solid year and we can just about guarantee that you’ll never be overdrafted, and you’ll save money and get ahead of your finances. We’ve seen it work time and again without fail, and we’d like to see it work for you.
Got a tip of your own? Have you dug your way out of debt and have advice for others? Comment below and share the wealth! Let us all benefit from your experiences and let us know what worked for you!