Does your money disappear? Do you ever check your balance a few days after making a large deposit, shocked at how quickly those funds have dwindled, and scan your transactions in disbelief? Have you ever opened your wallet expecting to find a wad of twenties, only to find a lonely five? If you’ve ever struggled to account for suddenly “missing” money, this post is for you.
The Invention of Accounting
Scribes have kept records of trade accounts for centuries, and historians still debate questions of when and where the first predecessors of modern accounting appear. Sophisticated ledgers probably emerged — like so many financial systems that survive today — in Renaissance Italy. The wealthy families required complex records of their trade and lending activities, so the accountants of the day developed double-entry bookkeeping to track debits, credits, and currency conversions in one place. These ledger books from the thirteenth century provided the foundation for generations of accountants, and the men who kept them wrote manuals that accounting students study today.
Literally keeping a book in which you write your day’s transactions is still a viable way to track your spending. After all, accounting spreadsheets are based on the ledger books that have been in use since the Renaissance. There’s something to be said for the analog methods of our forebears, especially if you’re stepping into unfamiliar territory. Sit down with a ledger book (you can still pick one up at a stationery or office supply store), and you may find yourself less distracted without the rest of the Internet beckoning from the next tab over.
How Much Do You (Really) Need?
I’ve downloaded more than one app and signed up for more than one service that looked like the answer to all my organizational problems. I can spend hours comparing “solutions” and more time getting my new system all set up, but it’s all for naught if I don’t keep using it. Before you read one more round-up of personal financial management (PFM) software and jump on the most robust, best looking, highest rated app you can find, think about what you need, and how much time you want to spend maintaining your records on a regular basis.
Consider a few of the main reasons to keep your own financial records in the first place:
- Tracking your spending / discovering opportunities to save money
- Monitoring your savings goals
- Finding ways to pay down debts faster
- Monitoring your investments
- Recording tax-deductible purchases and payments
If one of these reasons is especially important to you, look for a system that emphasizes your priorities. If a few of these don’t apply, avoid systems that are designed to accommodate needs you don’t have. You’ll save time if you don’t have to find work-arounds in a system that was built with other consumers in mind.
Two Schools of Thought
With all the digital records we generate from day to day, it’s easy to put off your own record keeping — why reproduce an accounting sheet when your bank keeps statements online? Many PFM solutions connect directly to your bank or other financial institutions and download basic transaction data for you to review, using merchant codes to show how much you’ve spent on restaurants, utilities, entertainment, etc. Some banks charge a monthly fee for direct access to account information, so if you’re looking to download your info to a desktop-based app, you may have one more expense to track before you even start.
Logistics aside, this method has the benefit of being extremely straightforward and low-maintenance. I used one budgeting app for several months in an attempt to reign in unnecessary spending, but I found too many inaccuracies to feel comfortable with the service’s automated categorizations — for example, a student loan payment was recorded with the word “Express” in the description, and the app interpreted it as a clothing purchase. Other than the occasional merchant code mixup, some transactions ought to be split in some way — a big grocery store trip might include $20 in food, $20 in cleaning products, and $20 in medicine, but to most PFM software, it’s $60 in groceries.
Tabulating your expenses using receipts might solve this problem, but it does require more work on your part. Some apps help organize receipts and streamline the budgeting process so that you’re not reliant on a pile of crumpled papers. If you’re serious about finding out just where all that money went, tracking receipts allows you to break down each transaction, factor in cash purchases, and maintain more exact records if you ever need to provide evidence of your spending.
We’re designing Simple to build some of these tracking and budgeting tools right into your account. But until you use one card for every household purchase, and until cash transactions are as antiquated as bound ledger books, you may find a need for some type of bookkeeping solution. New apps and services pop up every day for every platform, but few are remarkably different. Remember, too, that your financial data is considerably more sensitive than your to-do list; do you really need to access every transaction from all your devices? Will you have to expose your data to third parties for the sake of convenience?
Before you sink an afternoon into the greatest new tool, take a moment to think about what you need from your personal accounting. If the spectrum ranges from “I need a spreadsheet,” to “I need to hire an accountant,” where do you see yourself?