You downloaded it, linked it to your bank accounts, swore to report all your spending, loved all the beautiful pie charts even though you weren’t sure what they meant.
Then you tried to use it to create a budget you could actually stick to without a PhD in Finance. You still don’t know how much you have left at the end of the month for savings. You don’t know if you can afford a new couch, car or child. You really don’t feel more in control of your finances. You gave up on it and haven’t looked at it in months.
What’s wrong with you? Why didn’t it work?
It’s too much information. It’s too detailed for most people’s personalities when it comes to household finance. You’re not alone if you cannot figure out what all those pie charts mean and more importantly why it matters to your household budget. Most of my clients come to me and say, “I have xyz app, but I can’t really figure it out. Can I send it to you?”
When it comes to personal finance and budgeting, the simpler the better. Most people do not want to:
- Record every dollar they spend
- Feel anxiety about every purchase and how it fits into the their overall budget
- See every transaction they make each month
Most people want a simple set of numbers that tells them the most critical information: “am I spending less than I earn each month?”.
These apps/websites are good in that they record all your transactions, but you have to interpret these transactions.
To know if you’re spending less than you earn each month:
- Take one calendar month of transactions, copy and paste it onto a spreadsheet or use a calculator and pencil
- Put the purchases/expense transactions into simple general categories: groceries, eating out, take-out, gym, clothing, electricity, childcare, etc.
- Total all the expense categories
- Add up all your after-tax income into one number
- Subtract #3 from #4. That’s what’s left at the end of the month (hopefully it’s a positive number)
If the number is negative, go back to your general categories and see which ones seem strangely large. If you notice there were big car repairs or a root canal that particular month, repeat steps 1-5 on the month before. That’s your typical burn rate for your household per month.
Now, what about those apps/websites? You can use those apps/websites to keep your data, but unfortunately (or fortunately depending how you look at it) the data STILL needs a human to interpret it. Merely recording every transaction won’t tell you anything. You have to see how it applies to your life and goals. Don’t outsource it to an app!