How to Really Do It

A SIMPLE, ACTIVE APPROACH GENERALLY WORKS BEST. HERE’S HOW.

If you’re going to invest money, it’s best to make sure you have the money to do so. I spent the past week or so tweaking my Excel skills in developing a user-friendly, active system to help manage money. (It'll be done next time). There are many ways to do this, and you may determine that the best way to manage your money is to find a tracking system that works for you. However, it is very important that you track it.

Step 1: Train Your Behavior
Some people think that the best way to track your money is using a passive system, like letting the bank do it. (Which means all you do is go online and “check your bank account.” This is definitely not the best way to go about things if you (1) are planning to Run a Business One Day, or (2) if you care at all about keeping an eye on where your money goes. Think about this: Let’s say you had a bank account and everyday I would slip in and take away one buck. How long would it take you to realize that I’m slowly ripping you off? Hopefully not long, but because of “bigness bias” when people have “a lot” of money in their account, they tend to pay little attention to how small fees and expenditures eat into their accounts. Thus, if you make $1000/month, you may not bother canceling that $20-a-month subscription to Columbia House or Netflix that you’re not bothering to stop subscription or the Vibe/Time/Robb Report magazines you’re not reading.

Although most people will “wait until they get a real job/more money” to start managing their money, it really is a great idea to at least take a crack at it now. Remember, all more money will do is further enable the same money habits you have now. What could that mean for you?

Step 2: Determine Income-Outgo from last month.
This is fairly easy if you have a bank statement. Simply determine you income and outgo from last month and look for a net increase or decrease. It doesn’t matter if there was an “irregular expense” from the previous month. There will always be irregular expenses, as we will talk about in the next step. If you can determine spending by category, then you’re in very good shape. If you really can’t, then next month will be the time to do it.

Step 3: Determine Your Future Income-Outgo Money Flow from the past.
Monitoring your spending by using a simple spreadsheet program to track future expenses is the key step. (Pencil and paper work well too.) This is where we separate those who have the discipline to empower themselves versus those who will simply drag along in hopes of “outearning” the need to develop a written spending plan. Writing it down forces you consciously track how you spend as you go along instead of simply checking how you spent your money.

It would make little sense to try to use Mapquest only after you’ve gotten on the road just to “check where you’ve driven so far.” Maps are used to plan your route to your destination, and it complements your own common sense to find your destination safely and in good time.

Planning your spending ahead of time is about as easy as using a (good) roadmap. Most track month-to-month, and some track it monthly, but at the weekly level. There are many expenses that are somewhat fixed (rent, cable, etc) and some that are variable and usage-based (food, cell phone, some utilities, fuel, etc.) These recurring expenses can be tracked and you will know about them before they come up.

Most budgeting systems like Intuit’s Quicken and Microsoft’s Money are good at keeping track of where you’ve been, but to see where you’re going depends on you. You have to track for yourself money you haven’t spent yet because, well, you haven’t spent it yet. Microsoft may be good, but they’re not that good yet. Start with a simple spreadsheet to track your expenses. For those of you who are just “too busy” managing other people’s money to worry about your own, it would be in your interest to make time for yourself. I will end with a couple spreadsheets on that Financial Underground known as the internet where you can get some easy-to-use budgeting tools free-of-charge.

Thanks for reading. Have an excellent Thanksgiving.

Some of the best of the web (more to be added later):

From the It's Your Money blog site.
http://www.mdmproofing.com/iym/files/spendplan.zip