One Habit That Will Greatly Improve Your Finances

Matt Bell

What if there was a single step you could take to greatly increase your sense of financial control and confidence, decrease your financial stress, free up money for generosity, increase your savings, and speed the process of getting out of debt?  What if this single step was available to you no matter how much money you make?  And what if it only took a few minutes each day?  Wouldn't you do it?

What is this mysterious, seemingly too-good-to-be-true step?  It's tracking your cash flow - monitoring how much is coming into your household each month and where it's all going.

An Unpopular Step Toward Uncommon Financial Success

I know that using a budget, and especially tracking your spending, is not exactly the most appealing idea around.

There are even personal finance writers who advise against such steps.  One such writer recently sent an e-mail warning people that keeping track of their spending would be "psychologically overwhelming," and that even if they overcame that hurdle, seeing where their money goes each month would, in his words, only make them feel bad.

That's just plain crazy.  I doubt that any drivers are psychologically overwhelmed by their fuel gauges.  I find it somewhat helpful to know if I'm about to run out of gas!

Income is financial fuel, and each category in a Cash Flow Plan has its own fuel tank.  Your decisions about how much of your income to allocate to giving, saving, and spending on food and clothing and such, sets each category's fuel gauge on full.  Monitoring how much of that fuel you're actually using up gives you the information you need to keep your household humming like a well-oiled machine.

Does it make us feel bad to know where our money is going each month?  Of course not.  That information gives us the knowledge we need to make any needed adjustments.

Getting Started With Cash Flow Tracking

I realize that tracking your money is not quite as simple as glancing at your car's fuel gauge, but some of the online budget tools come close to that level of simplicity.  And even if you use a manual money tracking system, it only takes a few minutes each day to record your spending and see where you stand.

If you've never tracked your cash flow, just start keeping your receipts.  At the end of the day, write down what you spent in the appropriate category.

If you are using a paper & pencil system, keep your Cash Flow Tracker somewhere that you'll easily see it - on your kitchen counter or maybe your nightstand.  That way you'll be reminded to record each day's spending.

Or, if you use an electronic system like we do, get in the habit of checking your transactions once a day.  I do it in the morning before I start working.  Within minutes of logging on, our recent transactions are automatically updated.  I just have to make sure they're categorized accurately, manually enter any cash transactions, and then I take a glance at how we're doing in our various categories versus our plan.

The Main Benefits of Tracking Your Cash Flow

If you've never tracked your cash flow before, here's what you'll find.  First of all, you'll very likely begin spending less than before.  Just knowing that all of your spending will be recorded will make you think twice about many purchase decisions.

Second, you'll have a greater sense of financial control.  Stress often comes from feeling out of control.  When you go to the store and you don't have any idea how your spending may impact your ability to save or pay other bills, that's stressful.  But when you know where you stand in your grocery budget before heading to the store, that gives you a sense of freedom and peace of mind.  You know how much you can spend without messing up any other aspect of your finances.

How Often to Track Your Finances

Even pro-budget financial writers often advise people to track just some of their spending or track all of their spending but only for a week or two.  But you wouldn't limit your use of your car's fuel gauge to just a week or two, would you?  I say track it all, and track it all the time.  Doing so will give you the facts you need to manage money well.

Once You Track, You'll Never Go Back

Test me on this.  Track your spending.  All of it. I'm confident that once you get started you'll see so many benefits you won't want to stop.

If you already track your cash flow, what pros and cons have you experienced?  If you don't currently track your cash flow, what's holding you back?  Please leave a comment below.

February 1, 2011

Matt Bell is the author of three personal finance books published by NavPress, including the upcoming "Money & Marriage: A Complete Guide for Engaged and Newly Married Couples."  He teaches a wide variety of workshops, including the MoneySmart Marriage workshop ( at churches, conferences, universities, and other venues throughout the country.  To learn more about his work and subscribe to his blog, go to: