In my search for financial efficiency, insight, and success I've tried almost every technique and tool available. Nothing seemed to fit my situation. Everything seemed to be creating more work than value. I wasn't looking for a tool or technique to completely remove me from investing time and effort in managing my personal finances. However, the work I was putting forth often was on tasks that weren't adding any value, helping me get closer to behavior changes, nor decisions that would shape my financial future. The time I was spending on my finances was essentially housekeeping that took up the time I would rather make available to evaluate my personal finances. My deployment of different tools and techniques has evolved over time. Have you tried these approaches and did you find the same shortcomings?
Level 1: Paper & Pen
Graduating from school and trying to transition to the real world was an inner struggle. I observed my peers with fancy new cars, expensive outings most nights of the week and weekly travel to exotic locations all supported by what must have been bottomless bank accounts. My parents observed me grapple with the desire to save for an early retirement later while wanting to enjoy the life I desired to live now both constrained by a limited bank roll. They sat with me to try to help put frustration to action.
With a respectable first job at a "Big 4" accounting firm one would think I was set. I was certainly very fortunate, but entering right out of school presents freedom and choice that if not managed would lead to temptation ultimately setting me off course financially. To help me set a financial path and guard rails to keep myself on track, my dad brought to the kitchen table his readily available red marker with yellow legal pad, and his financial discipline. My mother joined us with her financial and real-world sensibilities, strength managing the family's cash flow, and motherly encouragement. And there we were building a few simple and critical key mindsets for my financial success. My parents helped me construct a simple but thorough enough grid capturing cash inflows and outflows. This grid, but more importantly the mindset of putting together a simple yet effective list of financial components, sits firmly in my mind a couple decades later.
Drawbacks of Paper & Pen: Manual construction, no automation, relatively inefficient to track actuals to budgets, only as good as what I can remember
Advantages of Paper & Pen: Easy to start, easy to reference, maximum flexibility
Level 2: Microsoft Excel Workbooks
Well into the personal computing age and having mastered the simple yet effective paper and pen method, I soon needed more advanced ways to manage my increasingly complex finances. Having learned Microsoft Excel in school and finding myself naturally gravitating to using this software in a variety of ways, I turned to it to take my personal finance organization to the next level. Excel may be the second most manual method to track spending and plan ahead, with perhaps paper and pen being the only approach more manual.
As time went on and technology advanced I moved quickly to other means for financial organization and decision-making. But Excel continued to provide benefit tracking financial aspects of my life that weren't available in other software offerings (as described further below). Excel also came in handy when performing calculations or using it as a worksheet for quantitative and even qualitative elements when trying to make a decision.
Flash forward beyond the applications and software I explored later on and you will find me scrapping all of them and returning to Excel, but going far deeper into its use. There were several techniques I only recently deployed, such as formatted tables, VLOOKUP, pivot tables, and conditional formatting to name a few. But the extent to which I use Excel to track, tally, and think through my finances is significantly greater and far more robust for my personal situation than any application I have come across.
Drawbacks of Excel: Manual construction, no automation, relatively inefficient to track actuals to budgets, still only as good as what I can remember
Advantages of Excel: More difficult to start, need a computer handy to reference, pretty significant flexibility
Level 3: Computer Desktop Software: Microsoft Money & Quicken
After working through my fair share of red ink on yellow sheets of paper and finding that my skills early on with Excel were holding my financial organization back, I began exploring other computer software that could help me take my personal financial management to the next level. Even back in the 1990s there were tools that were widely accepted like Microsoft Money and Quicken. These were handy tools, despite being software installed on my personal computer, that I could use to learn about how money works, enter my own data or import it from my bank, and hopefully gain new awareness each day as to how I can change my ways to become more financially successful. Computer software like Microsoft Money and Quicken came along and provided a framework catered to personal finance but required a similar portion of time entering transactions as I was spending with Microsoft Excel and pen and paper as well.
These early software programs were typically only installed on one computer at a time, if on multiple, syncing information across devices seemed then like a fruitless task. The basics of accounting were of course sound and easy to rely upon, but the user had to build out most of the categorizations and items to suit their needs in ways that made sense organizationally. Data could be imported at the risk of becoming an exercise of finding the file source online, exporting, saving to computer, uploading into the software and praying for fewer corrections, duplicates, and errors than the last month. No amount of praying would completely eliminate these three foibles of the process. When these software programs began incorporating files of data from banks and other financial institutions the process was often clumsy and still time consuming categorizing or correcting many transactions before one would be able to gain the insights these tools offer. It is a great time to be alive with the technology we have available today making this early software seem pretty antiquated.
Drawbacks of PC Software: Still not automated, arguably less effort than paper and pen method, data requires grooming for accuracy, only as good as what I can remember if data is not imported, not available "on the go"
Advantages of PC Software: Ability to use a computer to track budget to actuals, reporting for decision-making, tracking history
Level 4: Mobile & Web-based Apps including Mint.com, YouNeedABudget (YNAB), and Countless Others
And then came the Apple iPhone and later Android devices, though there were Personal Data Assistants ("PDAs") brought to many of us by Palm and Blackberry. The mobile application era arrived moving us away from our personal computers and helping us manage our life on the go. As time has marched forward, the proliferation of personal finance mobile and web-based applications have grown in number each with their own focus area or twist on making organizing personal finances better. I would personally hope to move the ball forward with one of these in much more effective ways. Some apps are geared towards shaving off or rounding up small amounts of money towards saving, assigning every dollar to a task, and providing clever visuals to understand your money better.
Still some have focused their efforts to help the many families struggling with debt sort through the monumental process of digging out of the financial situations in which they have found themselves. However, a few have become household names that may arguably stand above the crowd, particularly Mint.com and YNAB (You Need A Budget). Mint, YNAB, and several others have taken what Microsoft Money and Quicken started and strive to make the process much more mobile, taking personal finance organization to new levels, and overhauling the integration of banking information in what may be close to real-time.
With so many options to choose from one would think there would be the right solution out there to solve the personal finance challenges of finding where your money is coming/going, learning what crisp actions can be taken to affect one's personal financial state, optimize the financial structure for someone to move the ball forward, and ultimately watch the landscape to see what risks arise or where opportunities may present themselves. However, there are so many to choose from how does one pick the one to use? With so many approaching this environment, this may prove the point that the personal finance problems have not been solved and a holy grail of helping people become stronger financially is still left hidden. It's a matter of finding the right tool for you and your situation. I've tried more of these mobile apps than I can count, and as my favorite band U2 always says "I still haven't found what I'm looking for".
Drawbacks of Mobile Apps: Automation varies, arguably less effort than paper & pen and Excel methods, data requires grooming for accuracy, a little better than what I can remember if data is not imported
Advantages of Mobile Apps: Ability to use a mobile device to track budget to actuals on the go, reporting for decision-making, tracking history
I still haven't found what I'm looking for to help me manage my personal finances more efficiently
And as another famous person, Dr. Porsche, once said "I couldn't find the sports car of my dreams, so I built it myself" may also apply to the personal finance space, and may be the conclusion of what so many other technically savvy folks have thought, inspiring the creation of yet more "apps for that". But for every new app there are still inefficiencies, risk points, and shortcomings. The one most notable risk point in the era of increasing cyber threats is the requirement of so many apps to link all of one's financial accounts to the application through the loading of user IDs and passwords.
Assuming one is comfortable with that risk point, there are still inefficiencies that have not been fully solved with the process of importing data from a bank account into the app. I still find myself correcting categorizations that I thought I had trained Mint.com long ago to remember, managing tricky to keep track of transfers between accounts, budgets that are set in one month but then I go back after a short hiatus and find that previous months values are not accurate and can't be amended. In YNAB, the concept of using forthcoming paycheck(s) in conjunction with current bank account balances to "assign each dollar a job" when the "money tasks" on my plate are numerous and varied throughout the entire year not just the next pay period.
Assuming you have found an app you like either for visualizations or security levels there is still a lot that each user has to load into the app to fully capture the breadth of cash outflows, many of which come up as a surprise. But for all of these risks and inefficiencies the convenience of having the ability to track, report and make decisions with all of it in the palm of one's hand is quite a great benefit.
Keep reading with our next post, are you still dreaming of a better tool to organize your personal finances?
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