There just isn’t any way around it. No matter how you earn, invest, slice, dice and spend your money, one financial fundamental will hold true: you have to do personal bookkeeping to achieve and maintain financial success. PERIOD. It’s the plain and simple truth—no exceptions. Don’t cry….yet.
Something I (really) like to (hear myself) say is, “When it comes to money, calories and golf, we take a F-load of gimmes!” If you don’t track your personal spending and income—yes, like with a computer—then you will likely fail to uncover the essential information required to achieve enduring financial success.
(Unless, of course, you make more money than you know how to spend…and if that’s the case…stop reading this blog and go buy another island.)
The reason we have to do the “tedious” work of tracking our finances, is to glean the information we need from the results of this work.
Don’t freak out yet. You can likely outsource the tedious part, and then hire a psychic to interpret the results. See…easy.
What Kind of Information Do We Get From Personal Bookkeeping?
We get an enormous amount of valuable information from the data created by personal bookkeeping. Here are some of the basics…
1) You actually know if you spent more money than you made in a given time period. This is what determines if you get to invest money for your future, or if your debt hole just got bigger.
2) You can identify the areas of spending where you have the biggest overspending issues.
3) You can identity areas of spending that you thought were much less than they actually are.
4) You can learn whether or not you are saving enough every year to reach financial freedom (as quickly as you’d like).
5) Once you know how much you spend in a given category annually, you can very easily take a monthly average for assembling next year’s budget.
And in a broader sense, all of this information helps you identify things like net results, spending habits, quality income sources, and a host of other stats which enable you to better run your financial life.
A Silly Bit of Bookkeeping Fiction to Illustrate My Point
Let’s pretend you’re relaxing in a hot tub at some swanky ski resort in the Alps. A respectable looking Swedish hipster hops in next to you and randomly asks you to invest your hard earned money in his business…what questions might you ask?
Obviously, you’d first inquire, “Well, what does this business do?” and “how much money do you charge for the product?” Easy for hipster dude to answer.
But then you follow up with, “Ok, but does it actually make a profit as well? How much does it cost to create the product?” etc, etc.
And let’s say the Swede’s answer to those questions was, “I don’t know dude…we never really bothered to keep track of any of that shit…money tracking is so boring!” Then you would be like, “You’re an F-ing idiot, get out of my hot tub now.”
If this reaction makes sense to you, then why in the world would you expect your parents (or perhaps a stranger, or a bank even!) to give you money for your business, or house, or (insert good investment) if you don’t do the same?
Ironically, the bank will give you some money for the house, but it won’t be as much as you want. And the only reason they’ll agree to do it is because they reserve the right to kick you out and sell the house if you screw it up. Banks are smart.
You Are Running the Business of “YOU”!
I really do credit much of my success to consistent money tracking. There is actually a widely accepted term for this process…it’s called “personal bookkeeping.”
Yeah, yeah, I know…beekeeping is for businesses. Well guess what? Suuurrrprise! You are running the most important business in the world: THE BUSINESS OF YOU!
(Ok I’m calming back down now.)
The truth is that, initially, most of my knowledge about running a business resulted from me hiring myself to run the business of ME. Seriously, I gave myself my first job of “running a business” fresh out of college (and up to my eyeballs in debt).
I started tracking all my income and expenses, and figuring out if the “business of me” was a “winner” or “loser.” As it turned out, my business was seriously underperforming.
With that golden information, I immediately revised the way I was offering my product, and tried to find a better paying client. (Meaning I started looking for a better paying job with more responsibility!)
Seriously though, it was this experience that I eventually drew from to run someone else’s business, and then to start my own business. And then to use my knowledge to invest in real estate while making sure it all wasn’t just a house of sub-prime-loan cards, waiting to crash down around me!
OK OK, I Believe You. So, How do I Deal with Personal Bookkeeping?
I bet right about now you’re thinking, “Cool Joe, but the title of your post indicated you would provide a solution for the problem of me not liking to manage my finances. Is there some way around this crap?”
Good question, and no. There isn’t any way around doing your bookkeeping. BUT it’s SO IMPORTANT, that if you won’t do it, you need to find someone else to do it. Here are some options…and I’m being serious here….
1. Marry someone that has good financial skills
2. Pay me, or someone like me, to do it for you.
You might think I’m joking, but I’m dead serious. I actually believe that you should consider your financial future when selecting a mate. (I can see your eyes roll from here.)
I’m not saying it’s the ONLY thing to consider, or that you should forgo love and all that! But, if you’re not good with money, I would highly prioritize that in your mate selection process. (Yeah..your parents were right about that.)
If you can’t get your head around that concept, then you should seriously consider paying a service to do your personal bookkeeping for you.
I know it seems like something only the “rich and famous” do, but having a financial coach will likely save you everything you spend (on them) and probably far, far more!
Money, Calories, and Progress
When it comes to personal bookkeeping the reality is, if you don’t track to your income and expenses, you WILL OVER-SPEND on stupid crap. And therefore you will have less money to invest and help you achieve financial freedom. Or even worse, you’ll spend more than you make and saddle yourself with useless crap AND debt!
Similarly, if you don’t count your calories, you will eat more calories than you burn, unless you outweigh the calories with exercise or a fast metabolism.
When you take in more than you burn, you will gain weight. It’s just math again…and human nature. We like to lie to ourselves.
So stop cheating yourself, and start your damn personal bookkeeping today! (Sorry, I got excited again.) I use Quicken. And as of writing this, I am not getting a fee for saying that. I literally have used it for over 20 years now.
A Few Additional Resources
In additonal to doing your bookkeeping, you also need to have an (operating) budget for (the business of) yourself. Read this post on that…
Personal Itemized Budget Categories & How You Wrangle Them with My “Budget Template Google Sheets Masterpiece”
Here are some other gems to consider as well…
Independent Contractor Taxes & How to Incorporate (So You Can Pay Less Tax)
Renting vs Owning: Why You Need to Own the Real Estate You Live In (of Which You Will Be the World’s Best Renter!)
Big Picture Investing: Why You Need to Get in the Game Now! (Short Version)