Let me start off by saying that I am by no means the perfect example of a financially stable individual. As a student who loves to buy new toys (see My Camera) I often find myself splurging when I should be saving. However, I am one step closer to managing my money properly. Last night I finally took the plunge and started using Quicken to track my finances.

Browsing my account balances through online banking just wasn’t cutting it anymore; I needed something more to give me a clear picture of my financial situation. Given that this situation isn’t a very complicated one–I don’t own a house, pay rent, or have car payments–Quicken still provides a lot of features that I can take advantage of. If your situation is more complicated than mine, then you will be able to use the plethora of other features available in Quicken and other similar management software.

Enough about me, why should you track your finances? Here are a six reasons:

1. Automatically download your bank statements to your computer from the internet
Most financial institutions provide your transaction history in various formats readable by financial software. Many times you can also have your finance program grab the information for you automatically.

2. Place each of your transactions into a specified category
This is one of my favourite features. When I import my transaction history, I can apply categories to each of my transactions. For example, that $35 I spent on gas will go into the “Auto:Fuel” category and the $10 for yesterday’s lunch will go under “Dining.” The great thing is that the software will begin to recognize what category each expense belongs to and automatically assign it. Periodically, I can look at my expense report and see what categories are eating up most of my money. By doing this I have already realized that I need to brown-bag my lunch more often!

3. Create monthly spending budgets
By keeping track of all your inputs and outputs, your software and you can set up monthly budgets based on your remaining cash flow.

4. Project your future financial state
Once your software gets to know you–how much you make a month, how much you pay in bills, average expenses, etc.–it will be able to forecast your financial situation. This will allow you to see when certain debts will be paid off and help you plan ahead.

5. Track your financial progress
The biggest advantage that tracking your finances has over simply viewing your monthly statements is that it allows you to review your spending habits and track your progress (or lack thereof) over the past X months/years. This is a great way to motivate yourself to improve and set goals. I know that six months from now I want to see an improvement on my reports. Since this is important to me, I am more likely to discipline my spending habits.

6. Have an in-your-face view of your current situation
You know the saying, “out of sight, out of mind.” Well, this phenomenon applies to finances as well. Credit cards are bad enough as it is, not looking at their balances often can be disastrous. Tracking your finances will continuously put your balances right in front of your face. Nothing will kill your urge to buy that unnecessary new gadget like having a big negative number in bold red letters on your computer screen.

Initially, tracking your finances may seem like an intimidating and daunting task. However, when you think about it, it is just a bunch of addition and subtraction–financial software just takes some of the guess work out and pretties up the results for you. I have thrown Quicken’s name around in this post, but that is only because that is the software I’m using. There are many other money management tools out there, some of which are listed below. It is easy to fall into bad financial habits, get yourself on the right track by tracking your finances.

Money Management Tools:

Commercial:

-Quicken (also for Mac)
-MS Money
-Moneydance (also for Mac/Linux)
-Cha-Ching (Mac only)

Open Source (free):
-GnuCash (also for Linux)
-Buddi (also for Mac/Linux)

Online (free):
-Expensr
-Buxfer