When it comes to managing your personal finances, it’s important to keep the ideal of balance firmly in mind. This means that your incoming profits should balance favorably against your outgoing expenses. If the weight is shifted toward the debit side, you’re going to feel the negative effect this imbalance brings to your financial independence and quality of life. This is why it’s so important for you to know and understand the essential elements of personal money management.
Keep Track Of Your Personal Spending
Perhaps the simplest element of personal money management – and, in more than one instance, the trickiest – is to keep a tight eye on your personal spending. While it’s an excellent idea to seek the help of a professional money management firm, such as Fisher Investments, to keep track of your investments, the truth is that your personal financial history can easily be kept track of using a simple pencil and notebook.
Carry a Notebook Around With You
Get into the habit of carrying your notebook around with you. Jot down every penny that you spend during the course of your day. This includes every expenditure from your morning coffee and danish to the money you spend on a parking space in the city. By noting each expense, you will be able to solidify yourself into the habit of keeping full track of finances, second by second. You’ll never be brought up short by a decline on your credit card again.
Transfer Your Notebook Data to Spreadsheets
Once you have accumulated a full month’s worth of financial data, you may find yourself with an unwieldy mass of information that could easily get misplaced. It’s an excellent idea to transfer this raw mass of data to a spreadsheet. While this is hardly a high tech solution, you’ll find it to be extremely effective. Even major players in the investment industry, such as FI among many others, use strategies that are basically high tech versions of the one outlined here.
Use Your Spreadsheets to Identify Your Major Spending Trends
Another advantage of using spreadsheets is that you can keep track of trends in your monthly spending habits as they develop. After a year or so, you can look back through your spreadsheets to identify particularly larger peaks or troughs in your spending. This can give you a much more accurate idea of which times of the year you should be saving money in order to be prepared for those months when additional spending cannot be avoided.
Why Do You Need A Personal Balance Sheet?
It’s important for you to create a personal balance sheet for yourself in order to take full account of all of your incoming profits and outgoing expenses. This balance sheet goes hand in hand with your expense spreadsheets. The difference between your present assets (the sum of what you own, both in capital and in cash) and your liabilities (the amount that you owe your creditors) forms the amount of your net worth.
Your net worth is the most significant amount for you to keep track of in order to maintain your financial solvency and independence. Your continuing financial health and quality of life are the reasons why you need to develop excellent personal money management skills.