Truly Understanding Your Financial Situation
First, if you have not read part one of this series, I recommend you begin there.
Do you ever say, “Where does our money go???”. Too often we are interested in changing things, want to save money, and want to look towards the future but just don’t know where to start. What bills do you have? Which ones are reoccurring monthly bills and which ones have a duration? How much money do you spend monthly outside of those reoccurring bills? Into which categories does this spending fall? Where are your opportunities to save money?
Ok, you get it, we need to get a better understanding of where our money goes. We are now going to setup tools that help us see where are money is going, preparing us to make smarter decisions, hold ourselves accountable to budgets, and hopefully find ways to save money. Let’s get started!
A Tool to Bring All Finances into One Common View
These days it is commons to have loans through multiple providers, a bevy of credit cards, multiple savings and checking accounts, and many other sources of financial spending and saving. This can make understanding your entire financial environment extremely challenging and simply too much work for some. This is why I recommend www.mint.com.
I have used this site for years. It is a free service brought to you by Intuit. It allows you to plug in savings accounts, credit cards, loans, mortgages, investments to go with other sources you may have.
Go to www.mint.com and create a profile (Sign Up).
Add all of your accounts
Anything else they offer that you utilize
Mint brings in all your expense from sources like credit cards and checking accounts. It usually does a pretty good job categorizing expenses, but every once and a while it does not know where to put the item or puts it in the wrong category. Go through these and fix them and periodically check new expenses to make sure they are correct. This is important because you can setup budgets that track your monthly spending and let you know how you are doing.
The reason I recommend mint.com is not so much because of budgets. Mostly so that you can have a single view into your entire financial landscape. Regardless, using budgets can help establish goals, point out where you are over-spending, and keep you informed. For these reasons I recommend you establish goals. Do so for all categories your spending fluctuates that you can then control or improve upon. Obviously, items like a mortgage are static and a budget does help, but it can for many areas. Instead of setting arbitrary numbers for your budgets, I suggest you look at your spending. How much of it was absolutely requires and you could not get away from it versus spending that was by choice and you could have avoided it. Try to come up with a number that dramatically reduces unnecessary spending, but leaves enough that you do not go crazy.
Use this tool to understand where your money goes. Realize where you have room to improve. Be proud of every decision you make that leaves money if your pocket when you had an urge to spend.
Future articles are going to cover building money, saving money, and working down debt. It is hard to do so without a solid understanding of your money. That is why I wanted to setup mint.com first. I also hope you put some time into it before moving forward. Use it to learn where your money is going. Trend spending and start to realize potential areas for savings. This knowledge will help tremendously as we move forward. Good luck and enjoy!