RPF-0061-Track_Your_Money_on_the_road
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00:00:14.840 | Welcome to the Radical Personal Finance podcast.
00:00:17.200 | My name is Joshua Sheets, and I am your host.
00:00:19.880 | This is a special edition of the show recorded to be here
00:00:24.240 | while I am on the road traveling for a couple of weeks here in September.
00:00:28.120 | Wanted to make sure I didn't leave you without a show.
00:00:30.640 | If this is your first time hearing the Radical Personal Finance podcast,
00:00:34.000 | I hope you enjoy the content today, but please check out the archives
00:00:37.120 | for the more normal.
00:00:40.040 | Variety that we bring on the show
00:00:42.520 | and the more standard format that we tend to stick with today,
00:00:47.880 | I'd like to share with you a couple of ideas around the importance
00:00:50.680 | of tracking your money.
00:00:52.600 | I often am asked, Joshua, where should I start
00:00:55.280 | when it comes to financial planning?
00:00:57.760 | And number one place to start, I believe, is generally with
00:01:01.360 | what do you want out of life?
00:01:02.800 | Where do you want to go?
00:01:04.240 | What are you trying to do?
00:01:06.760 | And that really is the first place to start.
00:01:09.360 | That's not just some idea that sounds namby pamby that you make up.
00:01:13.840 | No, it really is a very important step.
00:01:15.880 | What do you want?
00:01:16.480 | Because that's what's going to drive the entire financial plan.
00:01:18.840 | The clearer you are on that, the easier it is.
00:01:21.520 | So if that's step one, though, there is, however, a step about
00:01:25.560 | we'll call it one point one and one point one is tracking.
00:01:28.800 | The strength of your financial plan is going to be based upon
00:01:33.680 | the accuracy of your data.
00:01:35.840 | If I were doing a financial plan for a client, there is a dramatic difference
00:01:39.280 | between somebody needing four thousand dollars a month of living expenses
00:01:43.120 | versus someone needing four thousand eight hundred dollars a month
00:01:46.240 | of living expenses, and you insert whatever number you want.
00:01:48.880 | But there's a dramatic difference in the financial plan
00:01:51.360 | because of those numbers in many ways.
00:01:54.920 | So it's very important to have accurate data,
00:01:57.160 | and it is very difficult for me to conceive of somebody
00:02:01.160 | being very financially successful and having an excellent financial plan
00:02:05.320 | that doesn't have at least some general idea
00:02:09.120 | of what their actual expenditures are.
00:02:11.280 | It's very important.
00:02:14.360 | So I'm going to encourage you, if you don't track your money,
00:02:17.760 | establish a system that works for you to track your money.
00:02:21.880 | Now, this system should, well, can and probably should vary
00:02:26.640 | depending on where you're at in your financial stages of life.
00:02:30.000 | For example, if you are deeply in debt, just getting started,
00:02:35.000 | working your way for the first time through a financial plan,
00:02:37.960 | it's probably very important to be very tangible with your expenses
00:02:41.880 | so that you really feel them and understand each and every one of them
00:02:45.200 | to be very specific while tracking them
00:02:48.200 | so that you have each and every one of them spelled out.
00:02:52.360 | And very, very detailed.
00:02:54.720 | However, if you are wealthy and have a substantial amount of income
00:02:59.760 | and you're living well within your means,
00:03:01.720 | it's probably necessary only to have a more general idea
00:03:06.040 | of the amounts and the totals for some categories.
00:03:08.960 | So a much looser system of tracking may be appropriate.
00:03:11.960 | But it's hard to imagine being able to have success
00:03:15.560 | without any system of tracking.
00:03:17.320 | So if you've never sat down and designed for yourself
00:03:20.440 | a system of tracking your money, consider doing so.
00:03:22.880 | And I'll give you a couple of suggestions.
00:03:24.960 | Try to be as simple as possible.
00:03:28.680 | Simplicity really does count.
00:03:31.480 | I am the king of making things complex.
00:03:34.840 | I have really messed this up so many times
00:03:36.960 | of going for a complex solution when simple is all that's required.
00:03:40.400 | An old-fashioned notebook and a pen
00:03:43.160 | and maybe a three by five card carried around in your pocket,
00:03:45.880 | a lot of times that can be a much better solution for you.
00:03:51.200 | Then the fanciest app that you can find for your phone.
00:03:54.200 | The app gets in the way a lot of times.
00:03:56.960 | Now, I'd also suggest to you that you design a system
00:04:00.040 | that's appropriate for what you already have.
00:04:02.880 | We can talk at some point about ways that you would want to change
00:04:07.920 | your tracking system or change your system of accounts.
00:04:11.440 | But just look at what you have and figure out an easy way to track it.
00:04:14.840 | So, for example, do you mainly use a checking account?
00:04:19.240 | If you mainly use a checking account and use a debit card maybe
00:04:22.720 | and some checks and some ATM withdrawals,
00:04:24.720 | then probably the best way to track your money
00:04:27.120 | would just be by keeping your check register current.
00:04:29.320 | I really believe, and I've worked with some younger clients
00:04:33.080 | who've never kept the check register in their life
00:04:34.720 | and kind of taught them how to keep a check register.
00:04:37.240 | And it's amazing the power of a simple check register.
00:04:40.120 | By the way, the reason that it's so powerful
00:04:42.080 | is because you can easily put into the check register
00:04:44.800 | forward-looking transactions and backward-looking transactions.
00:04:49.040 | It's incredibly powerful.
00:04:50.480 | You can't do that very easily with the software solutions.
00:04:53.400 | It's a lot easier with the checkbook register.
00:04:57.520 | But that may work really well for you.
00:04:59.600 | Now, if you're in the habit of using five different credit cards,
00:05:03.240 | one of which has the biggest rebate on fuel, so you use that one,
00:05:06.600 | and then the other one which gives you a 5% target discount,
00:05:09.040 | so you use the Target card and the Home Depot card and all of that,
00:05:11.520 | well, now it may be much more challenging for you
00:05:13.960 | to use a simple checkbook register.
00:05:15.800 | So now you might want to look for some sort of electronic solution.
00:05:19.760 | Electronic solution might be maybe an app like a Mint,
00:05:25.560 | Mint.com or a Mint app.
00:05:27.320 | They're the most famous, but there are many of them.
00:05:28.960 | Just search in your whatever your phone is
00:05:31.320 | or just search for some kind of app option
00:05:33.200 | and see which one stands out to you.
00:05:37.880 | There's tons of them out there.
00:05:38.880 | Now, on the other hand, let's say that you are someone
00:05:42.680 | who is very much a user of cash
00:05:45.600 | and you always spend cash because you like to either,
00:05:48.280 | whether it's part of your budgeting strategy
00:05:50.080 | or because you just like carrying cash.
00:05:52.840 | Nothing wrong with that.
00:05:53.960 | Well, in this case, maybe the three by five card method might be best
00:05:56.560 | and maybe a notebook at home.
00:05:57.760 | So you write in the three by five card when you spend the money
00:06:01.640 | and every day you just record that in a notebook.
00:06:03.360 | At some way, you just need to collect the data.
00:06:06.120 | Now, I'm intentionally, again, trying not to be too prescriptive
00:06:10.520 | with what you need to do,
00:06:11.920 | but sit down and design for yourself a system.
00:06:16.160 | Again, if you were just getting started,
00:06:19.920 | those solutions might work well.
00:06:21.720 | If you are a wealthy and you just said,
00:06:25.800 | "Hey, I've got plenty of money and I'm living within my means,"
00:06:28.360 | maybe you just put everything on your Amex
00:06:30.280 | and at the end of the year, you take the report from your Amex.
00:06:36.080 | They will categorize out the expenses for you automatically.
00:06:39.480 | You take a look at those categories of expenses
00:06:41.640 | and combine those with your standard household bills.
00:06:44.560 | That's fine too.
00:06:45.560 | I'm not trying to get into here a budgeting discussion.
00:06:49.760 | I view budgeting as different than money tracking.
00:06:52.520 | Budgeting is a forward-looking thing.
00:06:54.640 | Money tracking is a backward-looking thing.
00:06:56.600 | In one way, money tracking is useless
00:06:58.800 | because it doesn't affect forward-looking behavior.
00:07:00.840 | Money tracking is just all about having accurate data
00:07:03.600 | and budgeting is all about adjusting future decisions.
00:07:08.240 | Both are important, but they're important in different ways.
00:07:10.920 | People, I think, get those things mixed up a lot of times.
00:07:13.680 | So sit down, consider some detailed tracking method
00:07:19.160 | that will work for you.
00:07:20.160 | I would encourage you that it's not that much more difficult
00:07:25.000 | to make your system very precise than just to make it generalized.
00:07:29.200 | If you'll just take what you do and look at it,
00:07:33.360 | it's not really that tough to make most systems very precise
00:07:37.040 | and the extra degree of precision will allow you
00:07:39.640 | to feel much more confident with your financial decisions.
00:07:43.760 | I think that's about all I want to share for today.
00:07:45.760 | I'm intentionally trying not to say, "Here's what you must do,"
00:07:49.560 | but rather just encourage you,
00:07:51.160 | set up some kind of system for yourself.
00:07:53.880 | Good project for today.
00:07:55.680 | And I guess I would add this last thing.
00:07:58.800 | Expect your system to change over time.
00:08:01.000 | My system changes continually and I think that's okay.
00:08:05.960 | I do that myself. I think that's okay.
00:08:07.680 | The reason it changes is because I go through ebbs and flows
00:08:11.120 | of my financial life.
00:08:12.560 | So, for example, if I'm working very hard at a specific financial goal,
00:08:16.440 | at that point in time, I want to be really intense about my tracking
00:08:21.880 | and I want to be really proactive with a forward-looking information
00:08:27.560 | and a budgeting system.
00:08:29.000 | So, if I'm in financial distress or if the income is tight
00:08:33.240 | and the expenses are high,
00:08:34.760 | then I'm going to make sure that I'm very carefully watching every dollar.
00:08:38.560 | And so, when I've gotten out of debt a couple of times in the past,
00:08:42.880 | when I've gotten out of debt,
00:08:44.320 | I've switched everything to manual payments.
00:08:46.760 | I don't do anything as automatic payments.
00:08:48.800 | I cut everything off of just normal billing
00:08:53.200 | and everything becomes manual.
00:08:55.080 | And then I take full control back over.
00:08:58.400 | And so now every single thing gets a paper check written,
00:09:01.520 | everything gets dollars paid,
00:09:04.240 | you get the careful checkbook register,
00:09:06.240 | careful manual accounting systems, etc.
00:09:09.800 | That can work really great for a time,
00:09:12.720 | but then it becomes heavy over time.
00:09:14.720 | And so there may be a time I've changed over from that system
00:09:20.040 | to more automated systems,
00:09:21.440 | where once you have good income coming in,
00:09:24.360 | it's more reliable and more predictable,
00:09:27.360 | then you can set that up and that's coming in regularly into account,
00:09:31.800 | you can set up automatic drafts,
00:09:33.320 | and that smooths life out quite a bit.
00:09:36.000 | But it's hard, it's easy to lose control of that.
00:09:38.280 | And depending on the complicated nature of the system,
00:09:41.960 | it needs to change over time.
00:09:43.360 | So I've done it a few different ways.
00:09:45.080 | I've made a lot of mistakes in what I'm doing it,
00:09:47.080 | and ways I've done it.
00:09:48.560 | I guess the key thing I would say is, again,
00:09:50.760 | design a system that works for you,
00:09:53.280 | and then follow through and try it.
00:09:57.080 | Don't be scared to change it,
00:09:58.480 | but track that info,
00:09:59.880 | because you need that info to be able to make good decisions.
00:10:02.840 | Thanks so much for listening.
00:10:04.120 | I hope this was helpful for you.
00:10:05.440 | Be back with you with normal content soon.
00:10:07.920 | I appreciate your being here.
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