A commenter on a recent post left this nice message:
Dear Madame X:
I've been reading your post for a while and I love not only its practicalness but the smooth prose. Two things I've always been wondering about are: 1. How do you keep your spending record down to the cent esp. for the cash spending? 2. Through what ways did you gain so much financial knowledge having gone through a what I assume was a mostly liberal arts education?
Thank you very much!!
Well, thank YOU, anonymous reader! Now let's try to answer those questions you cleverly cloaked in all that flattery!
I've always tried to keep records of my spending, with various degrees of success. Until recently, my main method was to try to use my credit card for everything (since I pay it off in full at the end of the month), as that gave me a record of all expenses. That just minimized the amount of cash I had to track, and at the end of the year, I would just try to total up all my ATM withdrawals and start trying to analyze where it must have gone-- subtracting what I figured were average amounts for regular expenses like my morning coffee and muffin, the bus (back when I lived in Manhattan and took the bus to work and Metrocards hadn't been invented!), laundry, etc. Needless to say, this method wasn't all that successful-- I could account for a lot of the cash, but there was still too much that seemed to have vanished without explanation.
The thing that enabled me to change this was starting to use a Palm Pilot. I am not always a total gadget freak, but when the Palm came along, I fell in love with how easy it was to use, and how much you could do with it with all the software programs available. I used it constantly for addresses, calendar, to-do lists and more, so it was easy to get into the habit of entering my daily expenses in it. If you're a low tech person, you could carry around a small notebook and jot down your spending, but I highly recommend using a Palm or other PDA-- even if you lose it, the information will be backed up on your computer if you keep it synchronized.
There are a variety of financial software programs for PDAs:
Pocket Quicken: this is what I use. If you use the desktop version of Quicken, it's ideal, as you can jot down your daily spending on your PDA, and then it transfers those transactions into the desktop program when you synchronize with your PC.
Budget Master: I haven't used this program, but it seems to allow you to enter spending budgets and transactions so you can track how much you have left to spend in different categories.
Adarian Money: another program where you can set up various accounts and spending categories to track balances and budgets and expenditures. A desktop PC version is also available.
Ultrasoft Money: Yet another personal finance program-- this one offers synchronization with MS Money.
Most of these shareware programs cost between $20-40. If you want to try this kind of system without having to invest much in software, check out some of the free programs available at www.freewarepalm.com: before I switched to Pocket Quicken, I used MyCheckbook, which is simple and easy to use, and free!
As for the commenter's 2nd question about my vast financial knowledge... I actually don't claim to have any. I do have a liberal arts education which included absolutely no formal training in economics, accounting, or business. Whatever I know about personal finance is either a matter of
- basic arithmetic (or slightly more advanced math with the aid of Excel),
- basic common sense, or
- I've learned it from reading newspapers, magazines, books and blogs.
- I've also learned a few things about taxes from having had mine prepared by a very smart accountant for the last few years.
No one who can read and add 1+1 to get 2 should be intimidated by personal finance. No one should think "oh, I'll never get my finances in order because I don't know enough about investing, compound interest, etc etc." Just take a deep breath and start with the basics, and keep your eyes and ears open to learn more. If things start to seem to complicated, take a step back.
I may be working on a list of rules that is 15 long and growing, but really there don't even need to be that many-- how about this for a basic list:
- Rule 1: live within your means, i.e. spend less than you earn
- Rule 2: invest the money you're not spending-- somewhere, anywhere, but make sure it's earning some interest at least, and remember that you want the interest to be higher than the rate of inflation.
- Rule 3: start following rule 1 & 2 as early in life as you can. Today, at the latest.
- Rule 4: only borrow money for things that have future value: education and real estate, for example.
I think those 4 alone are a pretty good starting point. From there on, it's all just tweaks.
Oh, but there is one more rule: remember that you should make your own decisions based on your own judgment about your own situation, rather than relying on the advice of unqualified non-professionals like me!