Facing the reality of your financial situation is the only way to start improving. This is no different than weight loss or improving your overall health. While it’s easy to know when you’re overweight or out of shape, it isn’t until you step on that scale or schedule the appointment for blood work that you really understand exactly where you stand. Over the years, I have walked alongside many folks working towards better health, and it always seems like one of the biggest obstacles is simply facing the number on the scale. While it’s clear we’ve let ourselves go, we don’t really want to know just how far. Money is no different.
The signs of financial obesity are easy to spot: you’re constantly stressed about money, have no real idea what your monthly total or monthly billing is, have excess debt that seems to keep piling up, you reach for the credit card whenever it’s needed and, of course, you run out of money before you run out of the month.
I have good news and bad news for you. The good news is that, regardless of your situation, I firmly believe you can turn it around. The bad news is that you have to, once and for all, face these demons and take a stand against your financial situation by no longer accepting the idea that you are forever subject to living paycheck to paycheck and strapped with debt. You will not make progress until you are sick and tired of this mediocrity, and that you’re willing to do whatever it takes to improve. The mental shift is, by far, the hardest part.
The process of improving your financial situation is not difficult; however, it takes discipline and constant attention. People, who struggle financially, don’t like to even think about their present situation. Again, similar to gaining weight this is why so many people, who neglect proper health, find themselves waking up one day wondering how they added 50 or 100 lbs. Debt and poor financial habits are no different. The first step towards a financially healthy lifestyle is to commit to tackling this beast, wrestling it to the ground, and becoming the master of your money, rather than allowing your money to master you.
Step 1 – It begins with tracking all dollars spent.
There are no shortcuts to success. We accept this in certain areas such as sports training; yet, we constantly look for shortcuts in other areas such as dieting and money. There are no shortcuts!
The only way to get a handle on where your money is going is to begin tracking every single dollar you spend. Whether using a notepad, a binder, a spreadsheet, or as I do within a Google Sheet, the foundation of the future budget you will develop, the margin you create, and the goals you set for this margin, all begin by having an intimate knowledge of precisely where your money is going – tracking each and every single dollar spent.
But doesn’t my bank do this?
Yes, your bank does this automatically, but you glean nothing from reviewing this in hindsight or by using the bank information to know where your balances stand. The purpose of the exercise is to begin a routine where you see and remember exactly where your money is going each and every day. You also begin to develop this as a daily practice which will be the bedrock for turning your financial situation around. If you choose not to do this step, I cannot help you, and the odds of your success are not favorable. If you look to cheat this step, implement a shortcut, or decide it is too much to do, then you must accept the fact that you’re choosing to be broke and undisciplined. If this annoys you, that’s good. Maybe I’ve struck a nerve and it will turn into motivation.
Here’s what I do.
Over the years my tracking has evolved from a simple notepad to an Excel sheet, and now I am using a Google Sheet. I prefer this method so that I do not worry about losing or transferring data in the event I’m not on my laptop or I upgrade computers. Whenever I check my email, my Google Drive, and thus my financial spreadsheet, is at the ready. I typically update finances in the early morning or late in the evening. I can’t remember a day that goes by when I don’t update my sheet. If money is spent, in our household, it is recorded in short order.
My process for this is quite simple and my columns look like this:
Side note, I just copied and pasted the above from my Google Sheet where I track each and every dollar spent.
At present, I have over 30,000 rows in Google Sheets with expenses going back several years. At the end of each month, I hide the rows of the expenses for that month, unless of course they haven’t been cleared or reconciled. If that is the case I leave that row open so I can see it and know that it has yet to clear or be reconciled. At present, I have a $20.00 check for my son’s PTO written in April, that has either been lost or not cashed. I keep that open so I know that my bank balance is only as accurate as my entire outstanding expenses whether they have cleared the bank or not.
Each day, I will post the most recent expenses. The headings above indicate the date, the type of payment, the vendor, the business name, or general payment area, whether the amount was Accrued, a Debit (paid for), or a Credit (paycheck). I will discuss Accruals in a later post.
The Reconciled box is my way of cross-checking what the bank has posted and the final column, category, is where this amount goes on my actual budget (another post)
This process is not complex, but it is tedious and requires time and energy. This exercise mirrors health and fitness because you will not see the results you’re looking for if you’re not willing to do the work. Finances require the same dedication.
One of the figures that keeps me engaged with this data sheet is the top left box. As I copied this information, it shows $1,175.95, my current checking account balance. You don’t have to be a math or Excel wiz to enter a quick formula in this box to add up all the Credit Rows and Subtract all the Debit Rows to arrive at your current available balance. Now, you may have to do some tinkering in order to get this accurate in the beginning, but it is my method by which I can know exactly where I stand at any moment.
The process by which I reconcile my balance after I update my spreadsheet goes as follows.
Step 1 – Enter all new payments made.
Step 2 – Open a Bank account and cross reference or reconcile all amounts that have been posted. (Research anything that has been posted that I have not included – this doesn’t happen often but it helps catch errors or payments made for which you may have forgotten a receipt.)
Step 3 – Place an X in the reconciled box for every payment that matches what the bank has.
Step 4 – Once all payments have reconciled, I temporarily delete any payment I have on my spreadsheet that has not yet been posted in my bank. By doing this, my balance changes in the top left. Once I have finished deleting the payment amounts that have not been posted, I am able to reconcile the amount I have on my sheet versus what the bank shows. The numbers should match. If they do not, I have a problem and need to figure out where it is.
Step 5 – I undo my temporary deletions by hitting Ctrl + Z, thus putting my deletions back into the spreadsheet.
Step 6 – I then take my newly posted amounts and place them into my budget on another tab. (We will explore Step 6 in another post)
This process takes only a few minutes, unless I have a problem to research then it may require more time. It is part of my daily practice. Not a day goes by that I don’t have a solid handle on exactly where my budget is for the month, my bank balance, and anything outstanding that requires attention.
For the time being, I won’t elaborate on how to create your first budget, but I leave you with the goal of starting the tracking process. It is only from this step that will you be able to initiate the process of developing a budget and improving your financial situation. Skip this step, and it will be very difficult to develop a budget, create a margin, and reach your goals. Begin this process, and you’re well on your way. Remember, there are no shortcuts and Apps to assist with this only serve to skirt the time and discipline required to improve. Don’t fall for it, don’t take the shortcut, and don’t settle for mediocrity.
Until next time.