What Do You Mean "You Don't Track Your Finances"?!

Kraig | March 10, 2013 | 33 Comments · Getting Organized, Getting Ahead

I've figured out why some people are broke while others aren't. Broke people are broke because they are not tracking their finances while others are building wealth because they are. Yes, it's true and I'm sorry to have to break the news to those of you who are broke. It is a harsh reality.

My own story shows this finding very clearly. I used to just watch the balance in my bank account. I liked to keep it at a couple thousand or so. If it went up a little, it meant I had a little more to spend and if it went down a little, it meant I needed to cut back a bit. Sometimes, even though my bank account was low, I still wanted to buy things. Luckily, I had a credit card or two that I could put those purchases on. That's what they're there for, right? I mean, so what, I could just pay it off over the next couple of months.

You Need to Track Your Money to Win

Fail, people, fail. I failed with that strategy. If you're taking that approach, you're failing. If you're managing your finances by the balance in your bank account, where you think you have more to spend when it's high and less to spend when it's low, you're failing with money. If you're ever putting purchases on credit cards that you can't pay for in cash the second you make the purchase, you're failing with money. Lastly and most importantly, if you're not tracking your finances by recording all of your income and expenses, every single month, you are failing with money. Hey, don't hate the messenger. It's just the way it is and I'm relaying the news. I mean, come on. How can you be winning when you don't know how much you spend every month? How can you win when you don't know what your net income or net loss is every month? You can't, because without knowing those things, you don't know what condition you're in, what direction you're headed or what your goals are (you obviously have none). Not tracking your money is a recipe for failure and being broke. It's a recipe for working until you're 67 only to retire and live off of social security (if you're lucky).

The Golden Rule of Personal Finance: Start Using Mint.com ASAP

Alright, there's no use beating a dead horse. If you're still reading, you believe in the truth of this finding. The good news is that you can start tracking your money immediately and therefore turn your situation around as soon as today. If you're serious about making things happen, here's how to get started:

Step 1: Head over to Mint.com and set yourself up with a FREE account - Yes, it's trustworthy. Yes, it's the best option. Yes, you need to use it (if you aren't already). If you don't know what it is, it's an online service that serves as an aggregator of your online financial accounts. It works for mostly all of the financial institutions you do business with. Before you can connect your accounts to Mint.com, you need to set up online access to all of your accounts. This means, if you have a bank account through XYZ bank, go to their website and sign up for online access. Since it's 2013 (and not the 90's anymore), you should be able to access all your accounts online.

Step 2: Connect all of your financial accounts to your Mint.com account - Once you have online access to all your accounts, including bank accounts, credit card accounts, car loan accounts, mortgage accounts, investment accounts, etc., set up your account with Mint.com and connect all your accounts to it. Make sure that all of your accounts are connected. The point here is to get your complete financial picture inside of Mint.com. If you own property such as land, real estate or cars, enter those in manually under property. After everything is entered, Mint should give you an accurate look at your assets (cash, property and investments), liabilities (credit card and loan balances) and the net of those two, called your net worth.

Step 3: Go through all the downloaded transactions and categorize them - After you connect your financial accounts to Mint.com, 90 days of past transactions will be imported in (You will find them under the "Transactions" link on the top menu). This will pull transactions from all accounts, like credit cards, checking, savings and investing. It will be a mess that you'll have to clean up. Mint.com has categories of expenses preloaded. To get started, go ahead and categorize the following expenses under these Mint.com categories:

Rent or mortgage payment -----> Mortgage & Rent

Car expenses -----> Auto & Transport

Health expenses ----> Health & Fitness

Food expenses ----> Food & Dining

All bills and utilities ----> Bills & Utilities

All entertainment ----> Entertainment

All shopping ----> Shopping

Everything else ----> Pick a category

The key here is to categorize every transaction that Mint.com has loaded from your financial accounts.

Step 4: Set up a budget for your spending for the current month - Whether or not you choose to stick to a budget, it's good to make a budget in Mint each month. Doing so enables you to track how much you are spending in each category. To do this, click "Budgets" in the top menu. First, add income budgets. Enter each source and an estimate of how much income you will make for the month. Next, add a Budget for each category you plan to spend money in this month. Delete all Budget categories that you won't be spending money in. Then edit all their amounts. If your rent is $735, set that as your Mortgage & Rent budget amount. Do the same with car expenses, health expenses and food expenses. Tally up your totals from the few months before to guess what your total may be this month. Guesses are fine.

On the top left will be your totals. It will sum all your income budget categories and all your expense budget categories to give you an estimated amount left over. This is a VERY IMPORTANT number. It MUST be positive month after month in order for you to win financially and stop being broke.

Step 5: Log in 2-3 times/week for the rest of your life to keep things organized - Now that you've got everything set up, you've categorized all your transactions and you've built out your budget (if only for tracking purposes), you're all set. Now you need to keep this up to date by logging in multiple times per week, correcting wrongly categorized transactions and tweaking your budget categories and amounts. Always keep your budget estimates up-to-date. If you guessed you'd only spend $100 on entertainment this month, but you've burned through that already and expect to go to a concert this weekend, you should edit that amount to your current estimate for the month.

Okay Now Go, Get Started

Again, for this to work, you'll need to log in at least 2-3 times per week for pretty much the rest of your life. So, now that you know how to do all this, go on over there and get this all set up. It's crucial in this entire process of tracking your finances, living below your means, getting out of debt, building wealth and becoming financially independent. Bring me over to Mint.com Immediately ------->>>>>>

#Start Tracking Your Money #Start Tracking Your Finances #Start Tracking Your Expenses #How to Track Your Finances

Enjoyed this? Get new posts by email.

Join the Young Cheap Living newsletter — thoughtful essays on living cheap so you can do things that matter. No spam, unsubscribe anytime.

33 Comments

JC @ Passive-Income-Pursuit says:
March 10, 2013 at 5:43 PM
I hate it when people ask about finances but then won't follow through with the basic and most important step. So many people have no patience and have the get rich quick or buy it now philosophy. I had used Mint before but that was probably 4-5 years ago. I love my fully customizable spreadsheet and use that. For anyone just starting out Mint is great, because anything that at least gets you thinking about your expenses is a good thing.
- Blogging Banks says:
  March 11, 2013 at 12:23 PM
  I agree that people should be tracking expenses. Whether it is manual or using a company like Mint i a matter of personal choice. I hate to be playing devil's advocate here, but isn't anyone concerned that a third-party company has access to all of your financial information? What if someone hacks into your Mint account, and finds a way to empty all of your linked accounts? Without Mint, the hacker has to get into your accounts one at a time..
  - Kraig @ Young Cheap Living says:
    March 12, 2013 at 7:31 PM
    BB, No, we're not concerned with that. Mint is safe. They don't have writing access to your accounts, meaning all they can do is download your information, not change it. It can't transfer money. It can't withdraw money. It's okay to use. Millions of people have asked the same question. Take a look on Google to see all the information that's available on this topic. That should clear your concern.
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:23 PM
  Hi JC, Glad to hear you have seen success tracking your finances. Personally, I can't get into using a spreadsheet even though I'm a professional spreadsheet geek by trade. Mint is just too easy that it handles it all without effort. I simply love it.
Dividend Mantra says:
March 10, 2013 at 7:27 PM
Kraig, Good stuff. I use Mint religiously. I love it because it's pretty much automated. Once you set up your accounts and get everything linked over, Mint takes over from there. I make a purchase electronically and Mint categorizes the transaction based on the budget I have set up. If I make a cash purchase (like using the bus), I just log on every few days and add them in. It's easy as cake. If you don't have a budget set up and track EVERY SINGLE EXPENSE, then you don't really know where the money is going. You may think you do...or you may have "a good idea" of where it's going...but the money is leaving your pocket and you can't pinpoint its rate. Budgeting is step numero uno and Mint is a great way to get a handle on your money. Best wishes!
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:24 PM
  DM, You're right on. You must track every single expense. End of story. For everyone reading, Dividend Mantra just hit the $100,000 mark in cash/investments. This stuff works and he's proof. Believe me, he DID NOT do that without tracking his finances.
Sophie says:
March 10, 2013 at 7:47 PM
I'm not a huge fan of mint (maybe because it doesn't link with most banks in Australia?) but I 100% agree that tracking your spending is a MUST if you want to take control of your money. I swear some people have no idea how much they're spending.
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:26 PM
  Sophie, Sorry to hear they don't support Mint very well over there. It's works great here and almost all banks are supported. I agree with you (of course) that tracking your spending is a MUST.
Emily @ evolvingPF says:
March 11, 2013 at 7:23 AM
Great post! We love Mint. I couldn't help thinking of my parents, though. I had the same convo with them and together we created a Mint account and hooked up all their accounts. When it got to the stage of categorizing expenses and making a budget, though, things deteriorated and eventually they stopped maintaining the account. I guess it's just their bank in particular, but it seemed like every debit transaction was named something inscrutable, so they had to log in daily to rename and categorize before they would forget (which of course they didn't do). They also write a ton of checks (??) so they had to remember the purpose of each completely. It was costing them more time over manually tracking (even though I showed them how to make rules) so they gave it up. I guess some people don't care if they are failing with money! Mint was my best suggestion for them and I'm not sure what's next.
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:27 PM
  Emily, I know how that is. I tried to set a friend up in the same manner and he just didn't keep up with it. Like I mentioned in the post, there is a lot of work involved every single week and it takes COMMITMENT. All I know is that it's worth it.
krantcents says:
March 11, 2013 at 9:38 AM
Very true! It is similar to a diet or eating in general. You will gain wait if you are unaware or how much you are eating.
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:27 PM
  Agreed.
Oleg says:
March 11, 2013 at 2:07 PM
I tried Mint but did not like it at all. It takes too much effort of keeping it accurate. I do not like the auto categorization and not knowing which transactions I already fixed. Also, Mint does not allow you to split the transactions until after it is downloaded from your bank. These two things drove me to purchase Quicken 2013, which works great. I wish Mint offered what Quicken 2013 does so that I did not have to purchase Quicken. Kraig - Do you think the cost of Quicken 2013 is offset by the time saved managing finances?
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:36 PM
  Oleg, Mint DOES allow you to split transactions. I do it all the time. And yes, it takes effort to do this. Winning with money takes effort. That's just how it is. I've worked my butt off to get where I'm at. It has not come easy. The effort pays off, I guarantee it. That being said, no I don't think Quicken 2013 is needed. Mint.com does everything anyone would need to track their finances, as I'm using it and it's rocking for me.
Shawn @ Finance says:
March 12, 2013 at 12:14 AM
Hi Kraig!! Great Another post, Using Mint.com that’s good idea to manger financial accounts but What with all the security breaches and leaks these days, I’d never give out account information to some third party, no matter how secure or not it is. I’m not keeping my savings tucked under my mattress, but there is a certain degree of distrust with extremely sensitive information like that. What’s your opinion for same ?
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 7:39 PM
  Shawn, My opinion is that Mint.com is trustworthy. I've used it for 3 years and I'm 100% satisfied with it. The safety of this all should not be as big of a concern as many people make it to be. Just Google it, millions of people have asked about the safety of this all and it's safe. It is. But if you really don't trust it and don't want to give out your sensitive information, you may have to track finances some other way. But I use Mint, I absolutely love it and I'm kicking butt with it by tracking everything I make and spend and saving money like crazy. It's working for me.
  - Shawn @ Finance says:
    March 13, 2013 at 11:51 PM
    Hi Kraig! Thanks for shared your experience, Kraig definitely I will try Mint.com. I will go behind your suggestions.
Paul Blumenthal says:
March 12, 2013 at 5:58 PM
I don't track my finance and have good reasons for that. I did track them for a few months. And then tried cutting spending on food or other items. And you know what? It never worked! Just made me more miserable to think how wasteful I'm and how I can't handle my finances. And only then I realized... one second. That's BS! I was saving like 30% my income at that time, had literally no debt and a good job. So, why to sweat it? The whole thing just made me feel depressed. And for what? To save 3-5% more and stress about it? And then you put these savings into investments so some investors loosed them for you, or inflation eats it anyway? The only people who should track their finances are people who are in debt, without a stream of income, spending more than earning, etc. For rest of us it really doesn't make much sense. That's at least my take on the issue.
- Kraig @ Young Cheap Living says:
  March 12, 2013 at 8:04 PM
  Hi Paul, Thanks for stopping by and for posting your thoughts. I do, however, disagree with your viewpoint as I've tracked my finances and have succeeded as a result of it. I'm 100% bought in that tracking your finances is the right move if your goal is to win financially. For those who have other goals, perhaps this just isn't for them.
CashRebel says:
March 12, 2013 at 10:05 PM
Haha! I love step 5. My family and friends think I'm crazy because I log in to Mint every day on my mobile app while I'm on the train. It's such a reinforcing habit especially when it's dividend day! I'm with you, if you don't track your finances, you are pretty much planning to fail.
- Kraig @ Young Cheap Living says:
  March 17, 2013 at 9:25 AM
  CR, I can relate to the habit of checking Mint. I try to do it when others aren't looking so that they don't think I'm crazy. I just don't think they would understand how someone could sit and look at Mint all the time, but you obviously can understand. Some of us are just different and get excited by checking it all the time.
Lucas says:
March 13, 2013 at 9:17 AM
Mint works and is a great option for some. You can also get Microsoft Money for free right now as Microsoft released it for free when they discontinued development. http://www.microsoft.com/en-us/download/details.aspx?id=20738 Yes, you don't have the auto bank downloads anymore, but I can still download/import my bank/credit card statements once a month and that works well for me. I used MINT for a while, but the lack of future bill planning, and reoccurring entries made it more of a pain than having to download and import statements. The main pain was my paycheck - MINT can't auto break that out for you into what you paid in taxes, how much of it you contributed pre-tax to 401K etc. . . With MS Money I have the breakouts pre-planned and they get entered automatically on paydays. I know they have made some recent improvements and I may check it out again in the future, just no need right now.
- Kraig @ Young Cheap Living says:
  March 17, 2013 at 9:27 AM
  Hi Lucas, Thanks for stopping by and for offering your thoughts. That's neat to know that Microsoft Money is available for free now. I can see how there are some complex situations that Mint doesn't help with very well like automatically splitting paychecks. Perhaps some of the programs that cost money are a good alternative in situations like yours.
fridfullt says:
March 14, 2013 at 9:38 AM
hi. i`m a swedish Dave Ramsey fan! :-) i also save 50% of my income,this month even more, of 1057,30 USD i this month(march) save 621,94USD :-)
- Kraig @ Young Cheap Living says:
  March 17, 2013 at 9:27 AM
  Great to hear. Keep up the good work!
Laurie @thefrugalfarmer says:
March 14, 2013 at 3:38 PM
Kraig, in our case, tracking our spending is the single most important thing we've done in terms of debt reduction and financial planning. We started January 1st, and when I went back and took a look at our 2012 expenditures (thinking we'd done fairly well with staying on our "budget"), I found several hundred wasted dollars a month. NOT tracking your spending is, in my humble opinion, a dangerous risk at best if you're serious about getting out of debt. Great post!
fridfullt says:
March 14, 2013 at 5:03 PM
hi again. if you look in my blog, i get my hands on "the milionaire next door" have´you read it?? /the swedish girl
- Kraig @ Young Cheap Living says:
  March 17, 2013 at 9:28 AM
  I have not read that. I've heard good things about it though.
My Financial Independence Journey says:
March 16, 2013 at 8:19 PM
I tried the not-tracking strategy in the past. I figured "hey I'm pretty cheap, why waste the effort, I'll save money just by being me." Bad idea. When I started grad school, no amount of natural cheapness was going to make my tiny stipend cover all my expenses adequately. Thankfully, I wised up and started tracking my spending. Now I track everything assiduously. I have even gotten made fun of for this. One of my friends asked if I had any idea how much I spent on food last month. I replied, "Why yes I do. I know exactly how much." Somehow this made me a freak.
- Kraig @ Young Cheap Living says:
  March 17, 2013 at 9:29 AM
  My FI Journey, I can relate to others thinking I'm a freak for knowing my exact spending numbers. But if that's what it takes to win, I'm okay with it.
Budget and the Beach says:
March 17, 2013 at 7:55 PM
I admit I don't use mint, but I think any way you can track your spending and budget is setting yourself up for success, so for those of us not ready to use that kind of website or program, there is something for everyone...you just gotta do something.
- Kraig @ Young Cheap Living says:
  March 18, 2013 at 8:55 AM
  B&TB, Right on. Tracking it in some way, any way, is much better than not doing it. Mint isn't for everyone.
Pam@Pennysaverblog says:
March 22, 2013 at 2:58 PM
Yes, you are right. You need to know where your money is going and if you don't track it you will have no idea as to how you are spending your money. People look at me funny when I tell them I record everything we spend in Quicken, but I don't care, because I want to know where my hard earned money goes every month.