Many people get into bad financial situations without knowing it. Avoid dangerous financial situations by making a commitment to track your money more closely this year!
What would happen if your car broke down, you got sick or injured unexpectedly, or if your job let you go? Would you be able to support yourself and your family? Or would you have to depend on others or borrow?
A recent survey conducted by bankrate.com indicated that over 75% of Americans are living paycheck to paycheck with less than six months expenses saved. 50% of respondents had less than three months expenses saved, and 27% had no savings at all. Over one and four people wouldn’t be able to survive one month without borrowing or going into debt.
To be honest, I am currently in the 50% group that have less than three months expenses saved (in cash, not counting my 401k).
In 2014, I made the decision to follow the Dave Ramsey Plan and keep $1k in my savings account. All extra money after expenses went toward my Student Loan debt. Luckily, in the past 36 months, I haven’t had a major emergency (*knock on wood*). In July of 2016, I started my automatic savings plan (mentioned in my Automate Your Finances post) and began to increase my emergency fund automatically every two weeks to give myself a slightly bigger cushion until debt freedom.
Once debt free (Projected May 2017), I am planning to fully fund my emergency fund and will be out of the 75% without sufficient savings statistic.
Why don’t 3/4 of Americans have Sufficient Savings?
Simply, they spend more than they earn.
There are many reasons why people spend more than they earn. It could be that some people are in desperate situations where they don’t have much income and have a family to support. Maybe they can’t afford their fixed expenses such as mortgage/rent, car, or insurance. Or maybe they have a spending problem and aren’t aware.
All of these scenarios listed can benefit from Tracking your Finances.
Why I Track My Finances
Tracking your Finances is going to give you more information to make better decisions. It’s the same when someone goes on a diet. Dieters track what they eat (calories and macros) and weigh themselves- doing this gives them feedback on their progress and information to make better decisions. The same should apply to your finances.
Back in my college years, I would avoid looking at my bank account for weeks at a time because I didn’t want to see the small balance in my bank account. I was also too scared to do something about it, so I avoided it. I thought if I avoided looking at it, I wouldn’t put me in a bad mood.
“Avoidance may seem like an easy way out of a dilemma at the time, but know that the issue will present itself again and again until it is faced, dealt with, and learned from”
– Randi G Fine
Even in 2014, when I buckled down to pay more in my Student Loans, I wasn’t as efficient as I was in 2015 and 2016. The reason was partly due to higher fixed expenses at the time and also because I didn’t track my expenses closely. I had a general idea where my money was going but didn’t budget effectively based on spending trends. An example of budgeting based on spending trends is taking a year of food expenses, getting the average cost per month, and basing your food budget on that average. Another example is creating a Christmas Gifts budget based on previous years spending (the more years of data you have will result in a more accurate the budget).
Most people have a “general idea” where their money goes, but that doesn’t prevent against overspending or lack of awareness.
Track your Spending
If you have read my post, 2016 Spending Recap, you probably noticed I am now pretty meticulous about tracking my spending. By tracking my spending, I have a way of evaluating my progress, address adverse trends, and it keeps me motivated to reach personal spending goals.
When you start tracking your spending, you will have a more clear idea of your financial picture.
Ask yourself: are your monthly “fixed” expenses setting you up for failure? You might have to reevaluate your living, transportation, debt situation to see if there are better options to fit your financial situation accurately. If your fixed expenses are reasonable, then are you overspending on food, entertainment, or shopping each month? If everything looks good, keep it up, and try to optimize as much as possible.
Track your Net Worth
Net worth = Assets minus Liabilities
- Assets can be cash, investments, property, etc.
- Liabilities are debt (credit cards, Student Loans, remaining mortgage) and expenses
I look at my net worth about once a month. Some people only look at their net worth quarterly or yearly, it’s personal preference. However, tracking your net worth is an important exercise to make sure you are on the right financial path.
Do you know what your Net Worth is?
Since I graduated college with over $55k in Student Loan debt in 2013, I have always had a negative Net Worth, until Sept 2016 when I finally cross over into the black (positive net worth). I’m looking forward to seeing how far I can take my net worth in 2017!
Track Your Debt
Do you ever wonder how much of your debt payments are going toward your balance? Consider reviewing and downloading your payment history to a spreadsheet. You can quickly identify how much of your payment goes toward the balance and how much is going toward interests.
Seeing how much you spend on interest each month or year can open your eyes and change behavior for the better. Give it a shot!
Use Tools to Automate the Process
The tools mentioned below bring all the data from my various accounts (Checking, High-Interest Savings, Investments, Student Loans, Credit Cards, etc.) to one place, so I don’t have to log into each account separately. I recommend these tools because they save a lot of time while providing some great features; such as letting you analyze and categorize your transactions, easily track net worth, create budgets, and see trending data. Each tool is slightly different, but they are each valuable in a variety of ways. I would recommend trying at least one if you haven’t before.
Mint.com (free) (Personal Favorite) – Tutorial Tutorial 2
Personal Capital (Free) – Tutorial
YNAB (Free & Paid Version) – Tutorial
Spreadsheets – nowadays you can download your transaction history from your bank website into a spreadsheet (CSV). Check out this blog post on some great spreadsheet templates.
A challenge to you!
Try using one of the software’s listed above or a spreadsheet to track your spending for at least 30 days. Categorize your spending and identify ways to improve. If you have room for improvement, you will be able to see it. Numbers don’t lie.
Gary is the author behind Debt Free Climb, a blog that shows how to live intentionally, pay off their debt, build a side income, and travel the world
Gary's favorite free financial tool he’s been using since 2017 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments.
His favorite way to save automatically is Capital One Performance Saving, a bank that allows him to create multiple high-interest savings accounts and create an automatic savings plans for each account. He uses these features to meet short and long term savings goals.
His favorite way to save money on car insurance is by using Root, an app-based car insurance service. He saved $240 this year after switching from Geico to Root
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