Knowing the facts will help you make better decisions and outcomes in just about every aspect of life:
Do you want to be healthier? Track your medical stats and journal your exercise.
Do you want to be in control of your nutrition? Track your eating. (This works really well!)
Do you want to be in control of your wealth? Track your finances.
I gave up on budgeting years ago and opted to simply track my cash flow and net worth. A budget tells me exactly where I messed up and what I did wrong — which leads most people to ignore their finances. It’s also a lot of work, and isn’t a very healthy exercise for most marriages.
Tracking, on the other hand, provides a judgement-free collection of facts and data, and knowing the facts helps you make better decisions — decisions that put you in control of your wealth.
Why collect financial data?
Data collection tracks your consistency.
Consistency builds wealth. (Remember: Wealth is defined by you — monetary wealth, personal wealth, relational wealth, community wealth)
At Precedent AM, we provide tools for you to collect data and track your finances so that you can see every month how consistent you are being. You can see what’s working and where you’re progressing, and where you might want to make adjustments.
Making extra mortgage payments? You’ll see it in the data. How big is your Savings slice of the pie? The data gives you regular feedback and lets you know what consistent behavior is building wealth, and what isn’t helping. The data will also reveal some common misconceptions — like thinking that skipping a Latte will somehow fix your cash flow.
We’ll track it with you and coach you every step of the way.
Collecting data is motivating.
All of the small Next Steps we outline at each planning meeting add up to build sustainable wealth. But it’s easy to think these small steps aren’t making a difference.
When you see your net worth climbing and cash reserve swelling above your target, you’ll know that what you’re doing is working, and we will too.
Then we can work together as a team to improve your results and build the life you’ve been planning for now and in the future.
Having the data will enable you to make informed decisions.
When we have relevant and accurate data about our finances, we become more aware of the habits that are taking us closer toward our goals, and can be an objective observer of our finances.
When we know for sure where we stand and where we are headed, we can then decide what to do next and how to answer financial questions based on evidence, instead of just guessing.
Tracking gives us the information and data needed to make solid and informed decisions.
Make tracking financial data easy.
I have tried just about every financial tracking system available since 1990 — from paper ledgers and cash envelopes, to spreadsheets, Quicken for DOS, and the latest software tools circa 2014. The one thing I’ve learned is that the system has to be easy, or it won’t be used.
The best systems run in the background and record and organize your financial data for you. You check-in periodically to correct anything that is mis-categorized, review your progress, and make decisions.
Here’s how to track your financial data so that it’s easy and gives you quality information.
1. Keep simple accounts.
Run your expenses through a single checking account and one credit card. The system can handle more, but the work and complexity will rise the more accounts you keep.
Consolidate your old retirement plans and IRAs into single rollover IRA, and do the same with other account types wherever possible.
Try not to commingle personal and business finances. Keep simple accounts — and keep separate accounts.
2. Setup an automatic tracking system.
Precedent AM provides our clients with access to Balance Financial software in our Client Portal, and there are plenty of similar systems to choose from.
Open the software, link your accounts, and walk away.
3. Check-in regularly.
The system will need your help to categorize any checks you write, and will also need your input to know if that pharmacy purchase was medication, or candy bars.
Once a week, or every other week (depending on how good your memory is), check-in to categorize your transactions and look at one or two graphs to see how you are doing.
If you’re using our Balance software, we’ll send you monthly progress reports as well.
4. Share the information with your advisor or coach.
There is a lot to be gained by having an objective set of eyes looking at your finances and giving you input as you make decisions. Even with a masters degree in personal finance, I regularly seek input on my own finances.
Balance Financial and a number of other tracking systems will allow you to share key data with your advisor. Others, like Mint and Quicken, don’t allow sharing within their system, but you can still manually share reports and data.
The more you check-in and collaborate, the better your outcomes will be.