The Foundation of Personal Finance: Part 2- Tracking your Expenses

In Part 2 of the PF Foundation series we discuss the importance of tracking your expenses.

Another simple concept, yet so important to developing good financial habits that will follow you throughout life. Just like historians have recorded for centuries, our history tells us where we have been and can be used as a tool to help guide us where we plan to go. Another example would be a bodybuilder who wants to gain muscle mass. He or she can't just stumble around the gym using only the machines that suit their fancy at that time. They need to keep progress reports and have a goal with a plan where they want to be at some pre-determined time in the future. The same goes for our financial lives.

In Part 1 I discussed how to get yourself organized and keep all your financial paperwork/receipts in one place. Now that you have that established, we can more accurately track where the money that comes in each month is being spent. The next step is to create a spreadsheet, log entries in a notebook, or use one of the two popular financial software called Quicken or Microsoft Money. I recommend tracking your expenses at least a month, since utility bills come due at different dates and the month is the most common planning period for a clear short term picture.

Whatever method you decide works best for you is the one you should stick with. I recently purchased the 2007 version of Quicken since my credit union is listed as one of the finance institutions that can extract data into the program. Log everything! Some commonly overlooked expense are ATM fees and your own banks charge for using a non-network machine, convenience store trips for that newspaper, milk, or candybar, and trips to the coffee shop for that tasty latte. Even a small spiral bound notebook would suffice for logging daily expenses. The most difficult part is keeping up. I have desk calendar at home that I write on if I forget to log last minute store trips in my primary log.

This should keep you busy for the next 4 weeks. Part 3 will discuss Creating a Budget and how to plan so that your monthly expenditures don't exceed your monthly income sources.

Tim Haibach
PFDaily

Morning Coffee and Comments

Goodmorning everyone,

TGIF, right? One of the news stories posted on CNN Money talks about the many delays of Microsft's latest operating system, Windows VISTA. Steve Jobs from Apple stated that in the time Microsoft took to release one new version, it has released 5 versions for the MAC. VISTA is due to hit store shelves early next year. My question to all of you is this- Do you have any plans for upgrading your current OS? Most newer computers sold today come with some flavor of Windows XP which has been a significant improvement over Windows 2000 and the buggy Windows Millenium Edition (ME).

Post your comments at the bottom of this blog. I'd love to hear from you.

Nitecap Notes

As Thursday comes to an end, I'd like to leave you with an observation I became aware of yesterday while applying for a new credit card. You know those deals that touted you could earn cash back- 5% for this and that and so on. Well, those days are quickly coming to an end. Of the 4 top cashback cards that still offer actual cash and not points on certain purchases, only 1 is still available for new accounts- the Direct Rewards Platinum Mastercard offered through HSBC.

I still remember reading my April issue of Kiplinger's Personal Finance and reading an entire article on cash back cards. Guess that's my fault for not keeping up on my magazine reading. They weren't joking when the phrase "Time is Money" was created.

I was lucky enough to still apply for this HSBC Card online. It doesn't offer the best rates out there despite my "excellant" credit rating of 805, but I pay off my balance monthly. In the terms, the statements actually come every 20 days.

Tomorrow I will pick a topic of discussion from my hat too keep a variety of topics revolving.

The Foundation of Personal Finance: Part 1- Get Organized

The Foundation of Personal Finance will be a multi-part feature aimed at helping you start from the very beginning and take you through some necessary steps to becoming both more aware and more involved in your financial life. Every area of study has some core principles that must be understood and followed to lay a foundation so to speak. Personal Finance is no different. Whether you are 18 or 80, the Foundation of Personal Finance series will help get you where you want to be in your financial life.

Part 1- Getting Organized

Seems simple doesn't it? Americans are so busy these days: rush here, rush there, I wish blah blah blah was more convenient. Don't we all? Well, if we don't take a few moments each day to slow down enough to get a grasp of our financial picture, we sure won't have the time come retirement when we realize we haven't saved as much as we hoped to live off of. So, the first step is to track down all those ATM and store receipts, credit card statements, and bank statements to learn where the heck all our money is going off to. Seems like it's gone before we even have enough time to realize that it's there.

That's right, now you remember, huh? That item that had a mail-in rebate you never got around to filling out, the tax refund check from last year you never cashed and now has to be re-issued, stuff laying around the house you would like to post online but can't find 10 or 15 min to take a couple digital pics and upload to an online classified site? These are real examples because they have all happened to me too. Now I look back and see how foolish I was for letting all that money go. Well, here is the chance to redeem yourself! Start gathering now and finish reading this post once you've finished this portion.

Ok, you have all your financial clutter together now right? Now, designate a spot in your house where you will keep all your financial paperwork together because we don't want to have to spend time following that paper-trail again. It could be a desk drawer, a hanging file folder, a mult-part accordian folder, or whatever else suits your needs. I personally use a large 3 Ring binder and keep everything together there. This is the best system I have found that works for me over the years. Each person's ideal system may be a little different.

What should I file and what should I trash? Good question. I always enjoy participation ;-) Well, if you are renting, the most current copy of the lease agreement. Since prior lease terms are no longer in effect or in force, you can shred them. The same goes for all your utility bills including: heat, electric, water/sewer, cable, home phone, cell phone, and internet service. Your most recent statement will note if you last payment has been recieved. Once it has been posted, out with the old statement and in with the new, so-to-speak. Keep paychecks at least until you get your year end statement and have also recieved a copy of your Social Security Benefits statement that usually arrives about 3 months before your birth date. Keep the latest insurance policy to date including home, life, renters, and flood. Expired policies are not worth keeping unless you are comparing your insurance renewal for any discrepancies between desired and actual coverages. Current loan agreements should be kept, but payment stubs can be disposed of when posted to your account.

Bank Statements are becoming a different matter. With tax evasion and global terrorism more prevalent, keeping your monthly statements for at least 3 yrs isn't a bad idea. I review my older bank and credit card statements for major purchases and scan the document for home inventory and insurance claim purposes. You never know what might happen but you want to be prepared in the event it does.

This list isn't all encompassing, as each person's financial snapshot is different to some degree. In Part 2, we will discuss the importance of Tracking your Expenses and why maintaining a record of where you've been is important in determining where you would like to go in financial life.

Tim Haibach
PFDaily

Welcome to PFDaily!

Hello, my name is Tim Haibach and I am the founder and creator of PFDaily on the web. My intent is to promote open discussion on anything and everything financial that affects our daily lives. Sure there is Suze Orman, but I wanted to let people know you don't need a financial superstar to bounce ideas off of. I'm just your ordinary every-day guy.

I will be posting time essential tips like year end tax saving strategies, best times of the year to purchase certain items like clothes and cars, as well as many others. I will be posting reviews on topics like online banks, mutual fund companies, car dealerships, real estate companies, ect.

There are a few financial forums out there, but none of them could be considered a catch-all or one stop shop for all things financial. Again welcome to the site and I hope you enjoy reading the topics I cover as much as I enjoy sharing them with all of you!