I’ve figured out why some people are broke while others aren’t. Broke people are broke because they are not tracking their finances while others are building wealth because they are. Yes, it’s true and I’m sorry to have to break the news to those of you who are broke. It is a harsh reality.
My own story shows this finding very clearly. I used to just watch the balance in my bank account. I liked to keep it at a couple thousand or so. If it went up a little, it meant I had a little more to spend and if it went down a little, it meant I needed to cut back a bit. Sometimes, even though my bank account was low, I still wanted to buy things. Luckily, I had a credit card or two that I could put those purchases on. That’s what they’re there for, right? I mean, so what, I could just pay it off over the next couple of months.
You Need to Track Your Money to Win
Fail, people, fail. I failed with that strategy. If you’re taking that approach, you’re failing. If you’re managing your finances by the balance in your bank account, where you think you have more to spend when it’s high and less to spend when it’s low, you’re failing with money. If you’re ever putting purchases on credit cards that you can’t pay for in cash the second you make the purchase, you’re failing with money. Lastly and most importantly, if you’re not tracking your finances by recording all of your income and expenses, every single month, you are failing with money. Hey, don’t hate the messenger. It’s just the way it is and I’m relaying the news.
I mean, come on. How can you be winning when you don’t know how much you spend every month? How can you win when you don’t know what your net income or net loss is every month? You can’t, because without knowing those things, you don’t know what condition you’re in, what direction you’re headed or what your goals are (you obviously have none). Not tracking your money is a recipe for failure and being broke. It’s a recipe for working until you’re 67 only to retire and live off of social security (if you’re lucky).
The Golden Rule of Personal Finance: Start Using Mint.com ASAP
Alright, there’s no use beating a dead horse. If you’re still reading, you believe in the truth of this finding. The good news is that you can start tracking your money immediately and therefore turn your situation around as soon as today. If you’re serious about making things happen, here’s how to get started:
Step 1: Head over to Mint.com and set yourself up with a FREE account – Yes, it’s trustworthy. Yes, it’s the best option. Yes, you need to use it (if you aren’t already). If you don’t know what it is, it’s an online service that serves as an aggregator of your online financial accounts. It works for mostly all of the financial institutions you do business with. Before you can connect your accounts to Mint.com, you need to set up online access to all of your accounts. This means, if you have a bank account through XYZ bank, go to their website and sign up for online access. Since it’s 2013 (and not the 90’s anymore), you should be able to access all your accounts online.
Step 2: Connect all of your financial accounts to your Mint.com account – Once you have online access to all your accounts, including bank accounts, credit card accounts, car loan accounts, mortgage accounts, investment accounts, etc., set up your account with Mint.com and connect all your accounts to it. Make sure that all of your accounts are connected. The point here is to get your complete financial picture inside of Mint.com. If you own property such as land, real estate or cars, enter those in manually under property. After everything is entered, Mint should give you an accurate look at your assets (cash, property and investments), liabilities (credit card and loan balances) and the net of those two, called your net worth.
Step 3: Go through all the downloaded transactions and categorize them – After you connect your financial accounts to Mint.com, 90 days of past transactions will be imported in (You will find them under the “Transactions” link on the top menu). This will pull transactions from all accounts, like credit cards, checking, savings and investing. It will be a mess that you’ll have to clean up. Mint.com has categories of expenses preloaded. To get started, go ahead and categorize the following expenses under these Mint.com categories:
- Rent or mortgage payment —–> Mortgage & Rent
- Car expenses —–> Auto & Transport
- Health expenses —-> Health & Fitness
- Food expenses —-> Food & Dining
- All bills and utilities —-> Bills & Utilities
- All entertainment —-> Entertainment
- All shopping —-> Shopping
- Everything else —-> Pick a category
The key here is to categorize every transaction that Mint.com has loaded from your financial accounts.
Step 4: Set up a budget for your spending for the current month – Whether or not you choose to stick to a budget, it’s good to make a budget in Mint each month. Doing so enables you to track how much you are spending in each category. To do this, click “Budgets” in the top menu. First, add income budgets. Enter each source and an estimate of how much income you will make for the month. Next, add a Budget for each category you plan to spend money in this month. Delete all Budget categories that you won’t be spending money in. Then edit all their amounts. If your rent is $735, set that as your Mortgage & Rent budget amount. Do the same with car expenses, health expenses and food expenses. Tally up your totals from the few months before to guess what your total may be this month. Guesses are fine.
On the top left will be your totals. It will sum all your income budget categories and all your expense budget categories to give you an estimated amount left over. This is a VERY IMPORTANT number. It MUST be positive month after month in order for you to win financially and stop being broke.
Step 5: Log in 2-3 times/week for the rest of your life to keep things organized – Now that you’ve got everything set up, you’ve categorized all your transactions and you’ve built out your budget (if only for tracking purposes), you’re all set. Now you need to keep this up to date by logging in multiple times per week, correcting wrongly categorized transactions and tweaking your budget categories and amounts. Always keep your budget estimates up-to-date. If you guessed you’d only spend $100 on entertainment this month, but you’ve burned through that already and expect to go to a concert this weekend, you should edit that amount to your current estimate for the month.
Okay Now Go, Get Started
Again, for this to work, you’ll need to log in at least 2-3 times per week for pretty much the rest of your life. So, now that you know how to do all this, go on over there and get this all set up. It’s crucial in this entire process of tracking your finances, living below your means, getting out of debt, building wealth and becoming financially independent.