There just isn’t any way around it. No matter how you earn, invest, slice, dice and spend your money, one financial fundamental will hold true: you have to track your finances to achieve and maintain financial success. It’s the plain and simple truth.
Something I (really) like to (hear myself) say is, “When it comes to money, calories and golf, we take a F-load of gimmes!” If you don’t track your personal spending and income—yes, like with a computer—then you will likely fail to uncover the essential information required to achieve enduring financial success.
(Unless, of course, you make more money than you know how to spend…and if that’s the case, stop reading this blog and go buy another island.)
I assure you that you can’t “use your gut” or “feel” your way around this. Annnnd yeeeees, I agree, this is not uniquely groundbreaking advice. Still, the reason we have to do the “tedious” work of tracking our finances, is to glean the information we need from the results of this work.
We get a whole bunch of valuable information from the data created by bookkeeping. Here are some of the basics…
1. You actually know if you spent more money than you made in a given time period. Which is what determines if you get to invest money for your future, or if your debt hole just got bigger.
2. You can identify the areas of spending with which you have the biggest issues.
3. You can identity areas of spending that you think are much less than they actually are.
4. You can learn whether or not you are saving enough every year.
5. Once you know how much you spend in a given category annually, you can very easily take a monthly average for assembling next year's budget.
Furthermore, in a broader sense, all of this information helps you identify things like net results, spending habits, quality income sources, and a host of other stats which enable you to better run your financial life.
Let's pretend you're relaxing in a hot tub at some swanky ski resort in the Alps. A respectable looking Swedish hipster hops in next to you and randomly asks you to invest your hard earned money in his business…what questions might you ask?
Obviously, you’d first inquire, “Well, what does this business do?” and “how much money do you charge for the product?” Easy for hipster dude to answer.
But then you follow up with, “Ok, but does it actually make a profit as well? How much does it cost to create the product?” etc, etc.
And let's say the Swede's answer to those questions was, “I don’t know dude…we never really bothered to keep track of any of that shit…money tracking is so boring!” Then you would be like, “You’re an F-ing idiot, get out of my hot tub now.”
I really do credit much of my success to consistent money tracking. There is actually a widely accepted term for this process…it's called “bookkeeping.”
Yeah, yeah, I know…beekeeping is for businesses. Well guess what? Suuurrrprise! You are running the most important business in the world: THE BUSINESS OF YOU!
The truth is, initially, most of my knowledge about running a business resulted from me hiring myself to run the business of ME. Seriously. I gave myself my first job of “running a business” fresh out of college and up to my eyeballs in debt.
I started tracking all my income and expenses, and figuring out if the “business of me” was a “winner” or “loser.” As it turned out, my business was seriously underperforming.
With that golden information, I immediately revised the way I was offering my product, and tried to find a better paying client. (Meaning I started looking for a better paying job with more responsibility!)
Seriously though, it was this experience that I eventually drew from to run someone else's business, and then to start my own business. And then to use my knowledge to invest in real estate while making sure it all wasn't just a house of sub-prime-loan cards, waiting to crash down around me!
The reality is that, if you don't track your income and expenses, YOU WILL OVER-SPEND on stupid crap. And unless you have enough income to greatly outweigh that excessive spending, you will suffer significant consequences. It's the plain truth of math.
So stop cheating yourself, and start your darn bookkeeping today! I use Quicken. And as of writing this, I am not getting a fee to say that. I literally have used it for 25 years now.