Keeping Financial Score

Are you winning or losing the money game? It doesn’t matter if you are just starting your career, half way through or near the end; you need to keep score. Once a year you should calculate your net worth. A simple list of all your assets, liquid and fixed, minus all your liabilities, equals what you are worth. Redo the list every year at the same time to see if you are gaining wealth or losing it.

There is no big mystery or secret in winning the money game. It isn’t about how much you make but how much you keep. It does help if you make a lot but I am sure that you have heard about athletes or movie stars who have made millions during their careers and are now broke. If not, google “lottery winners who lost everything.”

The next score card you will need is the dreaded income or cash flow statement. It measures how much you make, how much you spend and what you keep. Keeping track of what you spend can be daunting. Everyone hates budgeting. It’s boring and time consuming. Plus it is impossible to predict future prices of items like the price of gasoline or imported food. Your method of tracking your spending should be as simple as possible so that you don’t get frustrated and quit.

The recurring bills like rent, mortgage, cell phone and utilities are easy. Keep these bills in an accordion file or enter them on a spreadsheet. The hard part is keeping track of other items like groceries, clothing, transportation, gifts and entertainment. Most people pay for these items using credit or debit cards. I would suggest one cash back credit card with no annual fee for groceries, drugs and gasoline. Use another credit card with no annual fee for everything else. Carry a small amount of cash for small purchases. Gift cards are a good way to keep track of the cost of your morning coffee. Making many small purchases with your credit or debit card will make it more difficult to analyze your spending habits.

Internet banking can save you a lot of time and effort in keeping track of your spending. I suggest that you learn how to use spreadsheets. By increasing the column width, you can copy & paste items from your bank account right onto your spreadsheet. The auto sum key will even add up the columns for you. It is never too early or too late to learn something new.

Regrettably, while not all your bills are due for payment every month, you can have a separate savings account to store funds for paying upcoming bills like insurance, property taxes and car maintenance. I would also put money aside monthly for birthday and Christmas gifts. Over-spending at Christmas time is a common problem and leads to making minimum payments on your credit cards. The majority of your money will go to shelter, groceries and if you own a car, transportation.

A guideline that I used to like as financial advisor to analyze expenses was the 28 /36 rule. It recommends that households should spend no more than 28 percent of their gross income on shelter (including mortgage payments, property taxes & heating) and less than 36 percent including all debt (car payments, student loans, credit cards & lines of credit).

If you want to win the money game, you need to learn how to keep score.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s