I have a friend whom I consider an outlier in that she started early tracking what she spend her money on. She has an excel workbook where she inputs her daily or monthly spending to a rather granular detail.
This is hard to do, unless you are a data nutcase like me. Ask 10 person and likely 8 of them will tell you, They can spend their time doing something much better.
The problem for her is that, despite this, she share that she have a problem controlling her spending.
The problem here is that, while tracking where you are spending your money is good, that is just Data Collection.
Fancy apps do not magically make your financial situations better. Apps are the enabling devices, or the support tools.
What is equally important is that, you need to review and reflect upon your data, there after create some processes, systems or habits to change how you live your life currently.
In You Need a Budget (or YNAB), they advice not to over categorize your budget. Bring out a certain targeted area where you are having problems.
Suppose you have a problem with clothes. You buy a lot of them (or are you buying a lot at all?). You break this spending out in a category call Clothes to collect the Data.
With the data, you can create some plans:
- Cut your Clothes money allocation by 10% for the next month. Slowly ease it down instead of setting an unattainable target of 50% since you were having a problem with it in the first place. Then cut another 10% the following month.
- Spend more time doing some other activities such as sports. When you fill your calendar with some other activity, you have less time for shopping
- Take a different route and bypass these shopping haunts. Less toxic environment, less chance to be tempted
A meaningful change here affects the Reality, and further collection of Data will show whether it is working or not.
If it doesn’t work that well tweak the Change.
This is how Reality, Data and Change come together to improve your financial situation.
And while we are on this topic, you will notice that collecting Data through spreadsheets, paper or a mobile app is important as well.
If you do not have Data, how do you know what to change and how much to change?
These three items in the diagram are equally important. Don’t blindly collect the data and do nothing with it.