Wednesday, April 01, 1998

A Little Feedback Goes a Long Way
By Ben Shieh ([email protected])

Ever wonder where all the money went? If not, lucky you, because it probably means you've always been very rich and/or very Foolish. Unfortunately, I am not rich and have only recently begun the trip to Fooldom. So in my case, I was always left wondering, "Where did all the money go?" Even after careful examination of my credit card statements and checkbook register, I'd be left wondering, "Okay, where did the rest of it go?"

The answer which should have been so obvious to me so long ago did not become apparent until I picked up a piece of software called Quicken. With Quicken, I proceeded to track my expenses. At the end of everyday I take five minutes to sit down at my computer and enter the day's expenses. This includes not only credit card purchases and written checks, but cash transactions. This does not mean I look into my wallet at the end of the day and figure out how much cash I spent that day. It means I make separate entries for the 50 cents I put in to the vending machine at school and the $1.96 I spent on batteries at Radio Shack.

For those not familiar with Quicken, it allows the user to categorize income and expenses and to generate customized reports on finances. By carefully recording every transaction, it soon became painfully obvious where my money was going. Even before generating a report after my first month's use of Quicken, the act of entering my expenses at the end of every day had forced me to contemplate and reflect on my daily spending habits. Still I was somewhat surprised at the amount of money I had spent on eating out in a single month. Now, I don't eat all that extravagantly, but it's amazing how all those "extra value meals" from McDonald's and Burger King can add up. I was also dismayed at how many small, impulse purchases I had made in the course of a month.

With Quicken I was able find out exactly how much I was spending and where. With this feedback, I could, during the course of a day prioritize my spending and ask myself "Is this something I really want or need? Is this worth it?" I quickly came to the conclusion that eating out for lunch on a daily basis was not worth it. Oh, I still eat out almost every weekend with friends, but I wasn't enjoying all those fast food burgers during the week anyway and when you think about it, it really doesn't take that much extra time to pack the previous night's leftovers for lunch. I estimate that I currently save about $50 a month by eating out less. I've saved more by cutting out all those small, impulse purchases which never added anything to my life anyway. May not sound like much, but when you're on a graduate student stipend, $50 a month is nothing to sneeze at. Besides, that $50 covers the monthly contribution to my newly formed investment club.

I strongly suggest to the would-be Foolish out there that they get some form of personal finance software. The $24.95 I spent on Quicken has been more than made up in the savings it eventually brought me and in the convenience of tracking my finances, including investments. One final piece of advice though, never use the "Miscellaneous" category when categorizing expenses. It defeats the purpose.

Have a similar tale?
Talk about it in the Fribble Message Folder!