The New Year is a good time to take stock of where you are financially as part of planning for where you’d like to be.  By “taking stock” I don’t mean just looking at how much is in your bank account.  I mean taking a look at how your bank account got to its current level—regardless of whether that level causes you to breathe a sigh of relief or to reach for a bottle of TUMS.

Tracking your spending is a key component of my frugal and happy philosophy.  For me, it all started with my first job out of college.  I was living on my own in Chicago, and I noticed that the cash I took out of the ATMs just seemed to disappear.   It was confounding to me, as I couldn’t imagine where it was going.  It wasn’t as if I was dropping wads of cash on anything…but in fact, that turned out to be the essential problem.

A little turned into a lot
Because I was frequently spending just small amounts of money (a little on fare for the El, a little on lunch, a little on drinks after work, a little on dry cleaning, etc…) it never seemed as if I was spending much in the aggregate.  But after several episodes of wondering where in the world the $100 I took from the ATM had gone, I decided to keep track of every dollar I spent.

This part, by the way, wasn’t and still isn’t a whole lot of fun.  It means getting a receipt or noting down the amount spent every time you buy something, even if it’s only a newspaper for 75 cents.  But it’s well worth it.  I entered all the data into Quicken and learned, to my horror, that I was blowing most of my money on eating out.  (I even remember the magnitude of how much I was going through, but it’s too embarrassing to share…)

Now some of money was spent trying some really good Chicago restaurants.  But most of it, I admit, was frittered away buying so-so sandwiches and frozen yogurt for lunch and grabbing dinner out when I didn’t feel like fixing anything.  In other words, I was not even consciously wasting my money.  By not watching where it was going, I was inadvertantly throwing money away on stuff I didn’t even really enjoy.

The power of measurement
Over the coming months as I started keeping track of receipts, I learned something even more illuminating.  Just knowing that I was going to have to account for money I spent made me think just a little bit more carefully before I bought things.  It’s almost as if I could pre-feel the disappointment I’d experience at the end of the month if the receipts documented another 30 days worth of thoughtless spending.

If you’re not currently tracking your spending, January is a great time to start!  What’s better is the tools to help you do so are now free:

• Quicken has an online version of financial tracking software that’s free.
• Clark Howard mentioned yesterday on his radio program that another free financial tracking software tool is available at www.rudder.com. 

You don’t even have to put your real bank balances in these tools, if you are concerned about security of your information.  Just put in an amount of money, say $10,000 or $20,000 or whatever, and enter your expenses against this pretend balance.   Create categories for your various expenses, and then check periodically to see how much you are spending on each. 

Keeping track of your expenses will let you easily see if you are spending money on the things that truly make you happy.  You’ll have the knowledge and awareness needed to master your personal finance choices. Then, the next time you take stock of where you are financially, you can hopefully breathe a sigh of relief and leave the TUMS bottle in the medicine cabinet.