Creating a budget is one of the most important steps to financial peace and confidence. While we all know this, very few of us take the time to walk through the transactions each month to see what is really happening with our money. Dave Ramsey, the Radio financial guru, says that the number one mistake that people make with their money is ‘simply not paying attention’. For me, the business of life gets in the way and the prospect of wading through receipts seems too daunting. This is why I personally use Mint.com, a free online budget tool that can really speed the process and help you finally see what is happening with your money.
There are certainly many tools available to track finances, and if you already have a process that is working for you, then by all means keep going! But if you are still struggling with tracking your spending, I encourage you to consider Mint.com. The online tool was created by Intuit, the same company that makes TurboTax, Quickbooks, and Quicken, so it is a substantial company with good security. The basic concept is that Mint acts as a data aggregator, logging into your bank account and credit cards to collect and summarize your financial transactions each month. This automation eliminates much of the data entry that makes budgeting so difficult. The site will even attempt to categorize each transaction for you, for example placing a ‘Chevron’ credit card charge into the ‘Gas and Fuel’ category without your input.
Sometimes, people see budgeting as a negative process, setting the limits on what can be done, but I like to think of budgeting as a positive process, guiding my money to what is most important to me. Before creating a budget, I recommend tracking spending for one to three months so you can clearly understand where your money is going and see the trends in your spending. Once you see what is happening, the ‘as-is’ state, you can begin taking proactive steps to adjust spending to your goals. As you review your spending, consider whether the dollars reflect your values. For example, if you love to travel and the cost of your house is eating most of the available funds, then maybe you should consider downsizing your house. Conversely, if you are spending thousands on vacation and there are improvements you want to make around the house, you can ‘choose’ to direct those funds to what is most important to you.
I also think that it is powerful to periodically ‘cut the grass’ on your spending, methodically working through the cable bill, the phone bill, the online subscriptions, the golf club memberships, the timeshares etc. to get rid of items you don’t need or are simply no longer important to you. Tracking your spending can highlight how much it costs to own that boat you don’t use, the vacation home you never visit, or the motorhome that sits in your driveway, making it easier to part with things you don’t need and opening yourself up to financial freedom.
Ultimately, budgeting should result in action, which is where the real value lies. There is a good rule in business that you can’t manage what you can’t track. The same is true for our personal lives. If we don’t really know where our money is going then we can’t really be in control of our money, resulting in a feeling of chaos and fear. Once we can see what is happening to our money, we can begin to make the decisions and take the actions that will result in real change to our financial situation. One of my clients decided that they had too much debt and set about to radically transform their situation. They sold their home and began living on their boat. They dramatically cut their spending and started a new business to increase their income. As a result, they are on track to pay off hundreds of thousands of dollars in debt and will completely debt free this year. It all starts by paying attention.
You can get started with Mint at www.mint.com. If you have any questions or need help getting started, feel free to give us a call.