Wednesday, November 11, 2015

How to Choose a Recordkeeping System - Part 4

Welcome to The Finance Gym Action Plan for a Better Life with Money video series. If you’re ready to not just know better but to do better with your money, you’ve come to the right place.

Today’s topic, one of my favorites, recordkeeping. It’s actually not really one of my favorites. I like recordkeeping. But given a choice on a Saturday, do I want to go hang out on a river, go for a bike ride or do recordkeeping? I think the choice is pretty obvious.

But what it came down to for me is, “Do I want a peaceful, healthy, successful financial life?” Well, that’s what I wanted and the conclusion I came to is I had to do more recordkeeping than I was doing.

For many of you, you’re probably going to have to too. Not for forever but definitely for a while. So I’m going to talk a little bit about recordkeeping today and I’m going to show you the super fun way of recordkeeping to just give you an example of what might work for you.

I get asked the question all the time. What’s the best recordkeeping system? What should I be using? Well, there’s no one answer. It’s just not that way.

So my answer is, “What recordkeeping system do you think is the most fun?” If your answer is none, “Well then, what recordkeeping system do you hate the least?” because the truth is you just have to pick something you’re going to use and whether that’s Quicken or Mint or Excel or a butcher paper or just writing it down the old-fashioned way in a ledger, I’ve seen so many people be successful in all of those modalities.

You really just have to pick which one is going to be – maybe not fun. But you know, why not try to make it fun? So this is the thing that Cassie did to make hers fun. She was a client of – in our finance boot camps and very creative and there was no way she was going to put everything of hers in Quicken.

So she said, “I don’t know. I’m going to put this butcher paper up on the wall,” where her kids could see it in the dining room and start keeping track of when money came in and when money went out so that she could get a feel for it.

So what I’m going to show you is extremely simplistic, $4000 something every single month. By the end of the year, it’s very easy to see she has brought in $48,000 and she was kind of writing down what she had spent money on but just the big swaths, nothing specific. Who cares if you spent $3 at Starbucks?

What’s really important is at the end of the month where you made $4200, did you spend $4600 or did you spend $3800? Those are really the most important questions. So she did the same thing with this blue line here as her spending and you can see like most Americans, she ends up kind of living paycheck to paycheck all month long or all year long.

Some months are different. Some months are better than others. Some months are worse. Then the same thing with tracking where your debt is. Take a look at the beginning of your year. So for her, she had $49,000 worth of debt and if you’re living paycheck to paycheck and not really putting a dent in it, which is what she was doing, she can end up with $49,000 of debt at the end of the year.

But if she can shave this blue line down and start tracking the reduction of her debt, you can draw it up here and see it. In a lot of ways, I think this is almost more valuable to do this where you can see it.

Last but not least, tracked her savings. So she didn’t have any savings at all. She was totally living paycheck to paycheck. But what she did have was retirement which is a form of savings. So $35,000 in her 401(k) and it was just inching up. By the end of the year, she’s at $38,000.

So there’s nothing rocket science about this. It doesn’t take that long. I pulled that together and drew that in less than five minutes. It will take you just a little bit longer but not all that much longer and here’s the thing. Just having that up there, isn’t that a lot better information than you had five minutes ago?

Are you going to get better information by using an Excel spreadsheet or a Quicken software? Absolutely. But is having that much greater detailed information going to impact the changes that you’re trying to make? Maybe. I think that remains to be seen as you kind of move through the work that we’re doing here together. For some of you, you’re going to have to drill into the details.

But for a lot of you, this big picture view is really all you need to do. So get your colored pens out, some butcher paper and have some fun. As always you don’t have to do this alone. In one of the chapters in the book Date Night with Your Money, I talk about the importance of grouping together with your community or an accountability partner.

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