Quantify Your Financial Life

To what extent do you keep track of your finances?

At some level, we all have the opportunity to track our finances.  We have access to our statements and account activity online, and some people even get paper copies mailed to them.  With certain accounts, I actually like that option believe it or not.

However you slice it, our financial lives can be quantified in some way.  After all, dollars and cents are numerical in nature!

Now, there are also degrees by which you can quantify your financial life.    Here’s a quick breakdown that comes to mind:

Level 1: Never reading financial statements.  This is the ostrich approach, not wanting to face one’s finances and pretending the problems and responsibilities go away.

Level 2: Looking at statements in order to make sure there is money to pay the bills on a monthly basis, but that’s it.  Forget about saving for goals, forget about retirement, just live for the present.

Level 3: Checking statements, and making sure to save some money for retirement and other goals if there is money left over.

Level 4: Not just checking statements but also tracking expenses.  Also, making sure to save money for retirement and other goals at least at some level.

Level 5: Tracking expenses, saving for retirement and other goals, and automating money management as much as possible.

When you get to Level 5, it’s a point that I see as reaching personal finance enlightenment.  Okay, I know that sounds a bit corny, but you get the idea.  A person who is at Level 5 will pay herself first, save for the future, and automate the process as much as possible for two reasons.

1. Tracking expenses – this allows one to understand how money is being spent, and to make adjustments accordingly to expenditures.  Knowledge is power, so if you can gain information on your spending it can only help you.  Making it automated is a way to get it done without making it onerous and a big drain on your time.
2. Allocating/Investing money – this allows us to make decisions to move money to different accounts and investment vehicles in a regular, easy fashion.  Making it automated allows us to focus more of our time on making money instead of thinking of ways to outsmart ourselves pinching pennies or outperform the market.

So, how have I done this?  At this point, I’m into level 5.  The basic approach for me is to track expenses via Mint, and bank online with Ally.

Expense tracking is pretty much automated, though it does require some manual adjustments from time to time to classify expenses.  But for the most part, it requires very little time on my part.  I’m easily able to assess expenses by category and in aggregate for a given time frame (monthly, for example).

Banking and money management has worked well. By setting up a checking account with a series of separate savings accounts, I can move money each month into these funds which are targeted for specific purposes.  The beauty is that it can be automatically done.  Additionally, I save time by depositing physical checks by scanning via the app on my phone.

These aren’t revolutionary methods of managing money, but I think that there are a lot of people that simply haven’t jumped on board with quantifying their finances.  For me, it’s been great to know exactly where my money is going, and also have it moved around to savings/investments in a quick, automated fashion.  I believe this has helped me both save money and save time – the latter allowing me to focus on other things.

I’m also tracking nutrition with MyFitnessPal, but that’s another post for another day 🙂

How about you?  To what extent do you automate tracking and saving/investing?