Does your money disappear?

One of the most common mistakes people make with their finances is not keeping track of money in and money out. I met a lady one time who was in desperate need of help with her finances. We sat together at her kitchen table with a cup of tea and I asked a series of questions to help me to understand the scope of the problems she was facing. Her main issue was “disappearing money”, as she so eloquently described it. I asked if she was able to see any obvious problems on her bank statements and suggested we have a look together. “Oh no”, she said, “I never open those envelopes. They’re only ever bad news!”

How can you expect to know if your finances are in a healthy space if you don’t keep an eye on what is happening?

Ignorance is not an acceptable position to adopt when it comes to managing your money. Taking this stance will mean that you are subject to circumstances, not in control of them. Life will happen to you and it will never be enjoyable for you if you continue to try to survive in ignorance.

Every week I’m asked if there is a “right way” to manage finances and keep track of what is happening. The answer to this question is that there is a “right way” for you. Each person is so different it would be futile to try and develop a one-system-to-fix-all solution.

One of my friends has developed a spreadsheet to help plan and track their family spending. This spreadsheet is so complex with formulae and tables that I suggested NASA might want to speak to her the next time they send someone to the moon.

Last week another friend told me they had adopted Xero Personal and were loving the simplicity of the online system. This service is no longer available to new customers but, if you’re this way inclined, you may like to trial Pocketsmith.

If you’re not so technical you may be encouraged to hear about the system my wife and I developed when we were newly married. We used a schoolbook, a pencil, an eraser and some chocolate. Why chocolate? I have learned that chocolate covers a multitude of sins!

The advantage of using a system to track your money is you can pick up bad habits when they appear. How can you ever expect to identify the problem you’re having if you don’t inspect your current spending behaviour? One way to do this is to take to your spending record with a highlighter. (Use bank statements or printed records from online). See what comes up repeatedly and then look deeper to see if it is causing you a problem.

When investigating there are two potential issues you may find; the first is repeated overspending in a particular area. You may discover you are at the supermarket seventeen times a week. This will undoubtedly result in a financial blowout. Secondly, the most common cause of disappearing money is lots of little items often – like coffee. You may find the cause of your financial problem is a $4.50 item that appears on the statement too many times.

Keeping track of your spending can be easy and will provide you feedback that will help you to fix the problem when money disappears.