You have probably heard the expression "cash flow is king". While that aphorism usually refers to the operation of a business, it is just as relevant to the business of your managing your personal financial life. And since we are playing with the expression anyway, I propose we make it "cash flow is queen" to elevate it further. :)
On a trip to Europe in 2005, I found myself lost in Amsterdam. This is not especially difficult to do there (or really anywhere for me) but it can be particularly disorienting when in a foreign country. I went into a store to buy a map and realized immediately that it would be of no use to me unless I knew where I was. I had to sheepishly ask the storekeeper to make a mark on my newly acquired map to show me where the store was. With a smile she obliged and I found my way back to my rented apartment.
The same is true when you choose to visit your personal finances. For many people, this is as disorienting as a visit abroad. If you don't know where you are, it is pretty hard to figure out how to get where you want to go. WHERE you want to go is another topic all together but movement in any direction starts with figuring out your starting point or baseline. One crucial component to the establishment of this baseline is to know your flow. You MUST know how much money is coming in and going out of your control each month (or week or quarter) over a long enough period of time to have a clear picture of your real spending patterns before you can make virtually any other decision with respect to your finances.
That means you must track it. Not just guess, but actually look at it. I thought I had a pretty good grasp on my spending before I started actually tracking it but once I did so, the results were very enlightening. The clarity increased the longer I tracked.
Is this easy to do? Nope. Is it particularly difficult? Nope. Are there a million excuses for not doing it? Yep. Have I heard many of them? Yep. Do I care? Nope. My response always is: just do it. I hereby re-appropriate that slogan from its use in corporate marketing back to our everyday language.
The tools for tracking income and expenses have proliferated and may make the process easier for you. Some of us older folks still remember, and even use, pen and paper. Nowadays my pen is more likely to be my voice and the notes app on my phone the paper. These work but they are rudimentary and will require the extra step of summing the amounts in various categories to illuminate areas of focus. There are specific apps like Mint, Personal Capital, Wallets, YNAB (You Need a Budget) that can help. Do you have a favorite? If so, I'd love to hear about it in the comments.
Spreadsheets work too and I kept one for 7 years. You don't need to do it for that long but you might find it as addictive as it is informative. Excel is great but if you don't want to pay for the Office suite then try Google Sheets. These can be used on your smartphone too. I found that the more you make a game out of it, the more easeful and enjoyable it will be. Maybe a friend will take up the challenge with you and together you'll be more accountable.
That will help prepare you for the next step. Once you have a clear picture of your patterns, share them with a trusted friend or a financial coach to get some outside perspective. All of us have blind spots and can benefit from gentle, and respectful, questioning about our choices. Also, you may not know about lower cost options in certain categories (innovative and less expensive mobile phone plans come to mind) that might help you save money.
I guarantee that whatever tools or methods you use to know your flow, you will have made a beneficial investment in your financial well being. In fact, the very act of tracking your expenses will make you more mindful of your spending. I'd love to hear about what works for you.