Money Management

The disadvantage of tracking financial accounts and transactions is the amount of time it consumes. I have spent hours on entering transactions and keeping account balances in harmony with the financial statements. The worst part is when I take a break from keeping track of the transactions. And recently, I have that experience again. I have not updated the transactions in my bank account for a few months. Going back to adjust balances is a pain for me, because I have lots of transactions in my accounts. I do a lot of trading in my brokerage accounts and I use my credit cards frequently. It makes me wonder if it’s even worth the time to be some detailed in my tracking progress.

The worse part is trying to recollect the transactions in my cash account. I do not always have receipts to trace back and there are no electronic records. Also, the cash balance in my Money frequently does not match the amount of cash I have on hand. It drives me crazy because I like to be organized, especially with my financial accounts.

Sometimes, I want to set myself free of this trouble and quit tracking each transaction. But then I would never know where my spending goes and what my net worth is. There is one way to compromise. I can track only the ending balances of my accounts at the end each month and not the daily transactions. This way, I can still keep track of my financial status and alleviate myself from hours of data input of the detailed transactions. This is an option in the future if I lose track of all the transactions again.

By the way, I do not believe that you have religiously tracking your financial accounts to be financially successful. I have seen entrepreneurs who do not keep track of every penny of their financial accounts and are still successful. I do believe, however that you have to be aware of your financial accounts and transactions. These entrepreneurs may not care about every penny but they do make sure they are generating profits. I believe the moral of the story is that as long as your cash flow is always positive, you are on your way to success.

Related Posts:

Financial Bookkeeping – Products (Part 1)

Financial Bookkeeping – Advantages (Part 2)

The primary advantage of tracking financial accounts and transactions is that it allows you to continuously monitor the status of your financial health. It helps with budgeting and year-end taxes. Money serves as a database for all my expenses and income and investments. I use Money to track my stock trades, asset allocation, and trading history.

One of my favorite features of Money is the reporting tool. I can run reports to see how much I have spent for selected categories during a specified time frame. I can also see my net worth over the time. These reports give me a very good understanding of my finances and allow me to see where I am with my goals.
It is also good to be able to see all my accounts in one place. With credit cards, savings and checking accounts, investment accounts, mortgages, and loans, I have over 20 accounts. It would be a disaster to keep track of these accounts by hand. I wouldn’t remember all the credit cards or investment accounts I have opened. But with Money, I have all my accounts listed in one place and I can see which ones are still active. I can always look back at which accounts I no longer need and I can close them.

There are many other features in Money, such as Budgeting and Bills Summary. Budgeting allows you to set up a monthly or yearly budget and the software alerts you when you have exceeded your budget. Bills Summary keeps track of when your bills are due. I have already set up email reminders for myself from the individual companies so I don’t use the bill payment reminders feature in MS Money.

Keeping track of your expenses is a good way to see where you have spent that paycheck. And you can compare how much percentage of your paycheck goes to rent, food, travel and other categories. This way, you will know where your money is going, as opposed to guessing where the money has gone.

The bottom line is that having a program, such as Money to keep track of your financial accounts will make your finances much more organized. Whether it’s budgeting, reminding yourself to pay bills, or to run reports to see your monthly expenses, financial bookkeeping allows you to be constantly updated with your finance.

Related:

Financial Bookkeeping – Products (Part 1)

Goal: Reduce the number of accounts being tracked in Money

On the front page of Money, I see a list of all my accounts every time I open it. I remember I started with only a few accounts in 2003. Today, I have 40 accounts actively tracked in Money. I think I have way too many accounts now and it’s time consuming to keep track of all the accounts, even with Money. I will close accounts I don’t need and keep only those I still use.

Here’s a snapshot of my Account List in Money:
Bank Accounts: 6 accounts
Credit Accounts: 12 accounts
Investment Accounts: 12 accounts
Loans and Liabilities: 9 accounts
Asset Accounts: 1 account

Total Accounts: 40 accounts

I plan to consolidate my Account List. I will close bank and credit accounts I no longer use. There are some accounts I use infrequently, but I will still keep them open for now. After analyzing which accounts I can close, I think reduce my Account List by 10 accounts, to a new total of 30 accounts.

Here is a list of accounts I will be closing off in Money by March 1, 2008.
My HSBC
Ing Direct
Capital One Credit Card
Chase Perfect Card
Chase Visa card
Washington Mutual
Old tenant accounts
Old loan accounts.

The new snapshot of my Account List in Money should be:
Bank Accounts: 4 accounts
Credit Accounts: 9 accounts
Investment Accounts: 10 accounts
Loans and Liabilities: 6 accounts
Asset Accounts: 1 account

Total Accounts: 30 accounts

I think managing 30 accounts would be much better than managing 40 hours. This should shave some weight off my accounts list and will save me time when I try to balance my Money accounts.

We use financial software to track our financial accounts and transactions. There are many programs created to serve this purpose. The two most popular ones are Microsoft Money and Intuit’s Quicken. I use Microsoft Money. It came with my computer a long time ago and I have been using it since.

There are also alternatives to these two commercial products if you need something more simple or if don’t want to pay for them. Someone asked me earlier if there was any good free product out there to keep track of financial accounts. I have recently found Finance Explorer from Metalogic Software. I read up on their features and description and the product looks good at a glance. Best of all, it’s free. Below is a screen shot. If I weren’t already using Money, I would give this software a try. Finance Explorer looks simple to use and can do the job of keeping track of my accounts.

Before Microsoft Money, I used Excel to keep track of my financial accounts and transactions. Excel is a great tool if you already have it. The great thing about Excel is that you can customize your spreadsheets. I have always liked to make my own templates to suit my needs. However, if you want to have something to use immediately, there are many templates available on the web.

Personal budget

Personal monthly budget

Monthly and Annual Expenses Planner

Expense reports

Back in the days, I kept a financial diary on paper. I have found old records of my financial bookkeeping. I wrote down the dates of each month and next to each day, the daily expenses. I see dates going back to my childhood, but of course, there are many gaps. I am surprised I have started tracking expenses so young. I guess it’s in me, even as a kid to be organized and keeping track of my financial records.

There are many ways to help you keep track of your financial accounts – pen and paper, Excel, Microsoft Money, Quicken, and Finance Explorer. You can decde on the software or method, but the point is to keep track.

Related Posts:

Financial Bookkeeping – Advantages (Part 2)

In response to my post, Money Management 201, here is an overview of my accounts:

Credit Card Accounts
This account is use to make purchases on credit. Use this account to build up credit and rack up points/miles/cash. Make sure you can pay off amount before charging. Preferably, this account pays rewards and has no annual fees.

Citibank Platinum Select Dividend – This is my primary personal credit card. I make most of my purchases on this card since it gives me cash rewards.

American Express Blue – Used to pay rent. My building accepts AmEx payments. Great way to rack up points.

DiscoverCard – Used this card a lot in the past, but don’t use it anymore. Thinking of canceling it.

Chase Freedom – This card is in idle status. I used it this briefly in the beginning because of the promo cashback rewards. It’s sitting in my drawer now and it hasn’t seen light for more than two years.

Chase Amazon – Used only for Amazon purchases. Pays 3 points per dollar spent.

American Express Business Platinum Card – Primary card for business purchases. Supports MS Money downloads, which is helpful for tracking expenses. Also, AmEx has excellent customer service.

Advanta Platinum BusinessCard – Used only for business purchases. Hardly use this card anymore. Replaced it with the American Express Business Platinum Card.

Checking Account
This account serves as a front line for financial transactions. Use this account to write checks and handle transactions not accessible in savings accounts. Preferably, this account pays interest. However, it’s more important to be fee-conscious.

Citibank Checking Account – I use this account to write checks for bills that do no accept credit cards, such as my electric bill. In fact, I have setup automatic payments for bills. I leave about $500 in this account.

Short term Savings Account
This account serves as your emergency fund and should host about three to six months of income. Cash should be easily accessible. Preferably, this account has a high-yielding interest rate.

Citibank e-Savings – I deposit all my checks to this account. I use this account to fund my checking. If my Checking Account runs low on funds, I can transfer money instantly from this account over to Checking. I also have setup automatic payments for bills. This account also serves as my emergency fund.

Long term Savings Account
This account serves as a dedicated place for your savings. Accessibility can be sacrificed for higher yields. Certificate of Deposits and other secured investments are options here.

Washington Mutual CD – Promotional interest rate. Matures on 9/30/2007. Going to move funds to the investment account.

Non-Retirement Brokerage Account
This account serves as a trading center for stocks, mutual funds, bonds, or other investments. It should have low commissions and no annual or maintenance fees. Discounted brokerage accounts are options here.

Fidelity Investment – This is my primary trading account. Fidelity has a large array of research material and helps keep all my investment accounts in one place.

TD Ameritrade iZone – This was my primary trading account until I started trading in Fidelity. I like the low commissions in iZone so I keep this account active.

Retirement Brokerage Account
This account serves as an investment center for your retirement portfolio. It should have low commissions and no annual or maintenance fees. Index funds, mutual funds, and dividend stocks are options here.

Scottrade Roth IRA – This is my designated Roth IRA account.

Guardian Retirement 401k Plan – This account was opened by my ex-employer. I am no longer contributing to this account but I leave my funds with my ex-employer because I like the funds there. I may consider moving this account to Scottrade in the future.

Account Management
Manage all your accounts using financial software such as MS Money or Quicken. Track all incoming and outgoing financial transactions.

Microsoft Money – I use this software almost daily to keep track of all my accounts and transactions. The online download feature makes it easy to update all the transactions from financial institutions. Money also has great reporting tools.

The stock market goes up and down like ocean waves. It is impossible to predict the movements of the stock market. How often do we make mistakes in the market by buying higher and selling lower? GREED can drive us to impulsively jump on a stock that appears to be rising and FEAR can overtake us and cause use to sell quickly because everyone is selling their shares. GREED and FEAR are our worst enemies and often causes us to act irrationally and make the wrong decisions.

One way to eliminate these emotions is by automatic investing, or emotionless investing. That’s right, we have to admit our emotions are the cause of our mistakes. And to eliminate the mistakes is to eliminate our emotions. We can fight our emotions by setting up a systematic way of investing.

The key is to invest a set amount at a set time interval. That is, put away an x amount of dollars every z period of time. This automatic investing allows you to take advantage of down markets where you can buy more shares of the market at a lower price.

For example, XYZ company is currently worth $10. If you invest $500 now, you will buy 50 shares of XYZ. Assume XYZ goes down to $5 next month. You invest another $500 on the next month, the same amount of money you did on the first month, but on the second month you would be able to purchase 100 shares. And assume, on the third month, XYZ becomes $20, you would only buy 25 shares on the third month. Over time, as stocks generally trend upwards, you will be buying more shares on the dip and end up with more shares than you normally would if you had not set up an automatic investing system.

The automatic investing system is very simple to set up and will be working behind the scenes until you put a stop to it. Say, you earn $5,000 a month. You can decide to put away 10%, or $500 of your monthly gross income for 401k investment every month. A lot of employers allow you set this event up to be recurring. It is simple, just set it and forget it. This leaves you time and energy to focus on other things. The money is transferred to your retirement funds every month behind the scenes and working for you. Over time this $500 a month will add up. Compound it with the average 10% market returns over the long term, you will soon build yourself a very nice nest egg.

This type of event works for non-retirement accounts as well. You can set up recurring deposits with your investment firm. Say, you want to put money away in an index fund with Fidelity every 2 weeks. You can set up an account in Fidelity and have your money transfer to Fidelity every 2 weeks from your bank account automatically.

The automatic investing system saves time and saves you from worries. There’s no more worrying about whether the stock has hit its low. If the stock dips, you simply buy more shares. The truth is nobody knows what will happen in the market. By putting away a set amount of money at a set time interval, you eliminate the factor of emotions and simultaneously apply discipline to your long term investing strategy. In the long run, regardless of how wild the market has gone through, the automatic system will surely make your ride in the market a smooth one.