Making the First Step toward Financial Freedom & Tracking Your Spending

So, you have decided to get real about your finances? Making the decision is a good start, but just like anything else that is worthwhile, it takes effort and discipline.  More than just those two attributes, it takes preparation.  My preparation came in the form of a three month analysis of my spending habits.  In my opinion, a three month snapshot of your spending is the most important thing you can do relating to personal finance.

Tracking your finances has a multitude of benefits.  Being able to see what you spend is just the tip of the iceberg.  By going through this preparation process, you will be holding yourself accountable for your spending.  You will also have information in your hands that you can make active decisions with (creating a budget, targeting areas to reduce consumption, etc.).  And most importantly, you are actively investing effort into your financial situation, confirming a desire to get your finances in order.

Regardless of your situation, tracking your finances is the most important step to your own financial awareness.  For example, if you are in debt, and can’t seem to climb out of the hole, you are likely to learn where you can cut back your consumption in order to pay off your debt in an accelerated fashion.  Conversely, maybe you have a really high income, and have your debts paid, but you aren’t saving anything.  Taking a closer look into your finances will make you see where all your hard earned money has gone and allows you the opportunity to decide if you want to maintain your current spending pattern, or make changes.  Below, I will outline two different methods of accomplishing this task.

Mint.com is a valuable resource in tracking your spending habits

Mint.com is a valuable resource in tracking your spending habits

Method one:  Set up an account at Mint.com or a similar site.  By registering your accounts with Mint.com, you will be able to get a very good snapshot of your spending without having to invest much time beyond the initial setup.  The drawbacks to this method are that you will still have to enter in cash purchases (you can do so by dividing up where you spent the money you withdrew from an ATM – also tracked by Mint.com) and you may have to spend a few moments recategorizing purchases that get misplaced into Mint.com’s built in categories (Mint.com’s software is very good at its auto-categorization, but it is not foolproof just yet).

Method two: Track your finances yourself in excel.  Now this method will take more time, but is likely to give you the most accurate information.  Furthermore, making the decision to “actively” track your spending, will actually have a direct effect on your spending as you will think twice before making a frivolous purchase, knowing you will have to enter it into a spreadsheet later.  Setting up one of these spreadsheets can be a barrier for some to get motivated and to get started.  That is why you can click here to download a sample spreadsheet I made for my friend Lauren for the months of July, August and September.  If you have any questions about how the spreadsheet works, please feel free to e-mail me at bscheur@gmail.com.

Either of the methods above will help you take that first step toward financial freedom.  The information you will gather about yourself and your spending habits is invaluable and will be your greatest asset when trying to figure out how to get out of debt faster, increasing your savings, or plan for retirement.

Best of luck.

2 Responses to Making the First Step toward Financial Freedom & Tracking Your Spending
  1. Brian
    June 20, 2009 | 11:06 am

    I was just charged $49.95 for a yearly subscription service i hadn’t used in years. Mint.com sent me a warning notice and was able to call and cancel the subscription for a full refund. Mint.com is an incredible tool.

  2. Shawanda
    June 24, 2009 | 1:06 am

    Hi, Brian. Heard you on the Personal Finance Hour. It was exciting to hear about all the different ways to generate income.

    Just wanted to say right on in regards to Mint. My bank tried to hit me with a sneaky service fee, but Mint sent me an alert immediately. It was only $5, but you can’t let these people get away with that type of stuff.

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