Wednesday, January 10, 2007

Question from a Reader: Expenses & Education

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 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

  1. basic arithmetic (or slightly more advanced math with the aid of Excel),
  2. basic common sense, or
  3. I've learned it from reading newspapers, magazines, books and blogs.
  4. I've also learned a few things about taxes from having had mine prepared by a very smart accountant for the last few years.
Do you need some kind of sophisticated financial knowledge to be financially secure? I don't think so. If you want to get seriously into investing, you need to know more-- but there are no guarantees that that will get you rich either. Even highly trained, brilliant people have been known to have their hedge funds go belly up!
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!


Stephanie said...

This is great advice. I try to follow it and it works.

I'm so glad you posted how you track it because I have been thinking about doing that myself. I don't really track what I'm spending, but I need to start... I am going to have to get a PDA. I had one, but it died last year and I've never replaced it. Let the comparison shopping begin!!

English Major said...

I had a very thoroughly liberal-arts education, ivory-tower in the extreme, and I don't find myself much behind my friends in terms of financial knowledge. Even the economics majors. I think there are some things that you can only learn by doing, and I think that organizing one's own financial life is one of them.

I certainly agree with the commenter about your smooth prose, though!

Anonymous said...

But spending $50-150 on a Palm isn't a very wise expense just to track where some dollars and cents are going, is it?

I like the alternative of a notepad you can buy at the dollar store. Heck, just grab any spare slip of paper and just discipline yourself to enter it into your home tracking software (excel, quicken, etc.) before you forget about it.

I personally put all receipts into my wallet, not in my pockets, bag or garbage can. One to three times a week I enter it all into Quicken. I have to take the next step and track cash expenses too, though.

Madame X said...

CleverDude-- yes, for some people, buying a PDA just to enter expenses may not be the best choice, even if used ones are cheap on EBay, but the key thing is to find something that makes it really easy for you to do the entering and tracking, so you'll actually follow through with it. Personally, I tried using notebooks and could never stick with it. So although I spent WAY more than $150 on my Palm, it was well worth it for me, because I use it for so many other things in addition to tracking my finances.

The Financista said...

I completely agree with English Major -- I was liberal arts all the way and feel far ahead of some of my chums, even the business ones. I think financial sense has more to do with personality, common sense, and upbringing than it does with formal education.

Ditto on the clever writing! It's always a very entertaining read!

Anonymous said...

I don't have a degree at all, but am financially ahead of almost all my friends and family (attorneys and doctors included). Living below your means is the key. My wife and I sit together at the computer to enter our expenses. Keeps us on the same page, and gives us some together time.

Anonymous said...

Looking for a new accountant in the NY you have any recommendations?

Anonymous said...

Keeping up with daily expenses is quite an eye-opener. I thought that I was pretty diligent with my spending. It turns out that the "little" expenses can add up very quickly.

I track my expenses with a simple excel spreadsheet.
- It is mobile (w/ a floppy, flash disk or email it can be transported easily to other computers / places).
- It is inexpensive (Excel comes with most new computers).
- And with some basic Excel knowledge the file can be set up and modified to adapt to my needs.

As others have already pointed out, your blog is an entertaining read and even serves as a catalyst for further financial research.

Keep up the good work.

Anonymous said...

You and Flexo are my expense tracker role models.

Actually, I'm sure tracking spending on a PDA would save me $50 in a year easily. (Providing I don't lose it.)

Anonymous said...

Thanks Madame X!!! It totally made my day to find your thorough response!!

(And as for how I record my spending, I currently use an IC recorder so I don't stumble into walls while trying to jolt down the numbers.)

Anonymous said...

This is one of my favorite financial blogs. You make the posts that save me from having to, and are a better writer to boot. I would just like to add a small tweak to rule#2 "Only invest in things that you understand."

You should complete the list of 15 and write a book. Also my previous entry didn't get on yesterday? How much do you spend on books yearly? What category does it fall under?

Anonymous said...

I hate to be picky, but I think rule #2 should be its converse. To be truly successful financially, you need to invest first and then spend the money you're not investing! Otherwise, you could easily end up living below your means with a piddling amount of investments.

clem clements said...

If you can use Quicken for 6 months I guarantee your initial cost for a Palmpilot and Pocket Quicken will be paid for at least 3 times over. I mention Pocket Quicken because it syncs with Quicken on the desktop.

The hard part about Quicken/tracking expenses is sticking to it. It's a lifestyle change, which isn't easy to do. I did it for one year (once) and have been trying to get back to that point ever since...

P.S. Vacations REALLY screw up your expense tracking. Don't fall off your path...