This tip is so simple and so dumb. Not dumb as in "you’re dumb if you do it," but dumb as in "Seriously? Why is this even a tip?" But don’t run away yet, because I stand by this fact: this is the most important and most helpful tip I could possibly share in this series.
That seems kinda silly, doesn’t it? Releasing the best tip right off the bat! Shouldn’t I save the good stuff for later, to keep you reading? Ha! Come on guys, I’m not that crafty. I’m way more concerned about you guys getting a running start, right now. So here we go.
Track What You Spend.
That’s it. That’s the secret. It’s hugely simple, and hugely effective. And everything else builds on top of it. Maybe it’s that old "knowledge is power" thing. Actually, it’s probably more like this:
For anything else to work, you need to know where the %@$# your money is going.
Too lazy? Bah! No one in the world is lazier than me, except maybe LazyMan, and even he seems to use Wesabe to track his spending. Which brings me to my next point – there are a ton of tools to make this task easier:
Old fashioned, dirt cheap: Small memo pad from the dollar store, and a pencil. Keep these two things in your purse or pocket, and every time you spend money, write down what you bought, where you bought it (maybe), and how much it cost.
*Bonus tip* I highly suggest that if you don’t use pencil and paper (I don’t), you at least keep a piece of paper in your wallet for tracking cash purchases that you don’t get a reciept for. If you’re anything like me, cash is incredibly hard to keep track of, even when you didn’t mean to be carrying much in the first place!
Free, more high tech: An Excel spreadsheet on your computer. This is what I use, so that I can track how much I make right alongside it. You don’t have to know how to use the math functions in Excel to do this – you can just use the little boxes (cells) as handy columns for the what, where, and how much.
Other computer programs work as well. Notepad, Word, whatever the Mac equivalent of Notepad is… you could even use a Paint program if it gets you to do it. I don’t care, just as long as it’s easy for you to read.
Also free, even more high tech: There are a lot of online sites that will pull the information from your bank accounts and credit cards, and analyze your spending for you. This is good if A) you trust the site and B) you rely on plastic forms of payment much more than cash.
Some examples of this: Wesabe, Mint, and Yodlee. Actually, most of these type of sites use the Yodlee system to do this – Bank of America’s "My Portfolio" feature is just Yodlee dressed up in Bank-of-America-red. To use Yodlee directly, click "Yodlee MoneyCenter login" on the upper right of their page.
I can vouch for the three sites listed above, because I’m a user. Your information will be safe thanks to their privacy policies. However, these tools aren’t completely perfect – you will have to keep an eye on them. Since they automatically sort and categorize your purchases, you might run into some weird blips. Like once, I had a textbook purchase show up in the "Health and Beauty" category. But most of these services are smart enough to "learn" after you correct them once.
The Power of Tracking
Not sold on tracking your spending? How about a story.
There was once a girl so broke and bad with money, she had to drop out of college and face the real world. But, when she dropped out of college, she also started tracking her spending. Over just nine months, she was able to go back to school. One year after that, her credit card was paid off, while she was still in school. Two months after that, she had $1600 in savings.
If you’ve read any other part of this blog, you’ll know that girl is me. It all started with tracking my spending. It’s the crux of all I was able to do.
You won’t have to do it forever. And you can automate it, now or later, using online tools. But you simply have to have some way to tell if you’re making progress. This is where it all begins.
We’ll get into how to use this information later. The important part is that you start immediately, if you aren’t already doing this. Start with the next thing you buy, or the next bill you pay. It won’t kill you.