Imagine for a moment you are a billionaire on the hunt for your next company acquisition. You’re looking for firms that are profitable and well run because you intend to buy the company while leaving everything else the same. Essentially, you’ll purchase the company and enjoy the profits while letting it run itself.
Photo by Dave Dugdale via Flickr
You come across a company that on the surface seems like a decent acquisition target. The product looks good, the team seems to be qualified, and there is a sizable customer base. However, once you dig deeper you start to notice some significant flaws. When the finance department meets with you, you are shocked to find they can’t account for half of the revenue the company brings in, nor do they really know how much their utilities cost them every month.
They are essentially running this seemingly successful business by the seat of their pants. They are flying blind.
Does this sound familiar?
A majority of you reading this run your financial lives just like the company above.
While you would be shocked to hear of a business running their operations without a corporate budget or the ability to account for how much is spent on marketing versus how much is spent on utilities, we live our lives in just that way. We don’t how much we spend on groceries, eating out, or if we can really afford to go on that next weekend trip.
We don’t know because we’ve turned away from tracking our spending. Isn’t that complicated? Doesn’t that require software? No, but if you feel you need help, here is a good list of budgeting tools and software.
No matter what you call it: a budget, a spending plan, financial plan, or simply how you track your funds… it’s important.
There are many financial gurus out there that promote their own system of budgeting whether it be the envelope system, a fancy spreadsheet, or a simple piece of paper. Frankly, I don’t care how you do it as long as you do it.
Here’s the kicker: tracking your money is important for one simple reason. Not because it guarantees you to be rich or frugal or anything.
No, it’s because what we track, we improve at. If you are serious about improving your finances, track them. If you are serious about losing weight, start tracking how many calories you eat, how long your can run, and how much weight you can lift. Your tracking method doesn’t have to be complicated and full of 37 different categories. Find the metrics that work best for you.
It might be as simple as starting with:
You can add different measurements after the fact. Maybe you feel like you are spending too much on groceries. Instead of wondering, why not spend a month tracking your spending at grocery stores to see what the total is?
If your grocery spending shocked you during the month you tracked it, you would feel incentivized to change. You’re looking at hard data and realizing you were spending more than you thought.
The following month you would then be aware to try and find ways to decrease your costs: maybe it is buying in bulk, using coupons, or buying a few generic items. Or maybe you discover the root cause is you cook once and throw the remaining food out because it goes bad in your fridge.
You won’t know unless you track it.
Run your life more like a corporation. Expect to know where your expenditures are and how much they change on a month to month basis. Come up with your own system or use someone else’s; it doesn’t matter as long as you spend just a little bit of time learning where your money is going each month.