To budget or not to budget…that is the question!
Many people, including myself, hear the word budget and automatically think of restriction, deprivation, or that thing that’s holding you back from living life to the fullest. I get it, you only live once and we could be gone tomorrow! I’m naturally wired that way myself, but that doesn’t mean we shouldn’t be paying attention to where our money is going. So in an attempt to combat the negative hype around the word budget, I’ve re-framed the concept to more of keeping an eye on our spending.
There are a ton of people out there that look at their bank account or credit card each month and wonder, “where the heck does my money go?” We were in the same boat a few years ago. My wife and I both had the accounts that we had set up on our own prior to combining finances, plus now the new ones we had set up together and it got difficult to get a true idea of where we were spending the money we were earning each month.
Understanding where you are spending your money is vital if you’re interested in achieving financial independence! Here are 4 easy steps to get started.
*Disclaimer* although the concepts will be the same, if you don’t have your various accounts set up online, these steps aren’t going to be helpful as they are predicated around linking online accounts into a centralized location for easy analysis. **Second Disclaimer** if you click on the Personal Capital link and set up a free account, we’ll both get $20, nice!
Step 1 – Set up a FREE Personal Capital or Mint account online
These are two online platforms that allow you to link all of your accounts into one centralized location that can be access via any computer and mobile devices with an internet connection. The benefit of this is that you can see every transaction from every account on one screen giving you full visibility!
You can not only track your spending but you can also set up a budget by spending categories, if that’s your thing. These platforms can look at your past transaction history and suggest a budget for you based on your saving goals. There are retirement saving calculators, cash flow analysis and a ton more! And did I mention it’s free?!
Step 2 – Link your accounts
Actually linking all of your accounts is somewhat of a manual process but shouldn’t be too painful. The most challenging thing that I’ve come across is actually remembering what your username and passwords are for each of your online accounts.
When I say “each account”, you don’t necessarily need to link each individual account but you’ll need the sign-on information that’s associated with those accounts. For example, the online banking login that gives you access to both your checking and your savings account with a single login credential – with that single login being entered into Personal Capital or Mint, you will link both the checking and the savings account.
Here are the types of accounts we have set up in our Personal Capital account today:
- CASH – 4 bank account logins – this includes 12 checking/savings accounts
- INVESTMENTS – 3 investment account logins – this includes our 401k accounts and our personal investment accounts, 9 in total
- CREDIT CARDS – 5 credit card logins – this includes Chase, Citibank, Bank of America, American Express, and Lowes
- LOANS – 2 loan accounts logins – this includes 1 mortgage account and 1 car loan (almost paid off!). You can also link up student loan accounts here
- OTHER ASSETS – this currently includes our home but can also include cars, boats, rental properties, etc. We entered our home address and Personal Capital links up with Zestimate to give us the estimated market value of our home in real time, which is pretty cool!
Step 3 – Start categorizing your transactions
With all of your accounts linked, now here comes the fun part! The platform with automatically assign categories to the expenses it recognizes for you at the start date you choose but it’s not always 100%. For example, if I fill up my gas tank at Wawa and also run inside to grab a sandwich, Personal Capital might think both transactions are for Gasoline/Fuel. In that instance, during my review of our expenses, I can simply re-categorize the food expense to something like Grocery or Restaurants, which brings us to the last step!
Step 4 – Create a routine to review and adjust categories
You’ve done all this work to start keeping an eye on your financial world, so don’t let it go to waste! Come up with a routine for at least once a week to review the automatic categorization that the app provides. I’m taking a look every couple of days, especially after the weekend or days where we’ve gone out or bought stuff online because I don’t have the best memory! 🙂
The key is not to let an entire month or so go by without looking at any transactions because the task to verify categories or trying to remember what exactly you bought can be a challenge the more time that goes by. So do it while is fresh in your mind!
To wrap up, keeping an eye on your spending is important. You’ll be surprised what you will find when you’re able to look at all of your accounts holistically. All of a sudden those recurring subscriptions will pop out, the car payments, the groceries, etc. The restaurant tab was our big ah-ha moment.
One last thing, cash is tough to track, plain and simple. So we try not to do it if we don’t have to. If we do, it’s usually for a specific purpose and we try to pay attention to what we need it for, and yes, it’s okay to spend on a category like Hobbies! This isn’t deprivation, this is keeping an eye on and understanding where your money is going!
Let me know what you think by leaving a comment! What other methods are out there that work for you? What’s holding you back from setting up one of these accounts?
Check out the screenshot below of you Personal Capital account online!
#thrivetofi
