Surprising Perks to Tracking Your Finances
Closely tracking your income and spending has some obvious benefits when it comes to meeting your financial obligations and living within your means. In addition to making sure there's enough money to cover essential and discretionary spending, there are other surprising perks that reward the time and effort you put into tackling your personal finances.
Adjusting Your Spending Priorities
When you start tracking every dime you spend, it's likely that you'll realize how much you actually spend on so-called little things. "People recognize that they indulge in certain things, but they're in self-denial as to how much they're actually spending on them," says Investors Group consultant Terry Baker.
"When I sit with my clients and track their expenses in an organized way, they recognize that the amount spent on certain items exceeds the importance of those items, particularly when it gets in the way of their overall financial picture." When you see that large cappuccino in the context of blocking your way to a new car, it may be easier to live without it.
Gain New Tools to Maximize Your Budget
When you've tracked and analyzed your spending in detail, you have the information to try a number of methods to control your spending. For example, you could use a bare bones budget to cut away all but the most essential expenses when you have an urgent savings or debt reduction goal. Another approach is the zero-sum budget, where you assign every dollar you earn to a task — whether it's bill payment, debt reduction or savings.
The Benefits of Money Awareness
Tracking your spending takes willpower, and some researchers have found that improved money fitness can influence overall well-being, just like physical exercise. When you're aware of the amounts you actually spend on things such as eating out, smoking and drinking, you may gain a different perspective on those activities.
It might be easier to modify your habits when you know the real costs as well as the health compromises. At the same time, the discipline of tracking finances seems to create a positive willpower habit that aids in the achievement of other lifestyle improvements.
Buying something you want brings you pleasure. That's normal, of course, but unease can creep in during the time it takes you to carry your new treasure to the checkout. Some money coaches feel that the natural balance of desire and unease is tipped in favor of spending if you don't keep track. Tracking your money improves your own internal checks-and-balances system to help overcome impulse purchases.
Take Advantage of Improved Credit Scores
Because tracking money gives you the tools and resources to improve your financial life, you'll see an improvement in your credit score as your debt is reduced and your bills are paid promptly. That improved score has its own perks — you'll have your pick of credit card offers, such as low-interest and rewards cards. Just be sure not to overuse them and go back into debt. Also, vendors from cell phone providers to car dealers offer better deals for high credit scores.