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Personal Finance: How Detail Should You Go?

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Personal Finance - How Detail Should You GoMore than often big financial problems started from neglected-small financial issues. Not paying your loan/credit interest on time, not paying your electricity and utilities on time, not tracking mileage properly, for examples.  As an accountant, how details should you go for your personal finance? Should you organize it as you organize a corporate? Or should you code very personal expenses and keep them in a colored folder? 

Henry is the model of financial organization. His financial documents are neatly organized into color-coded folders. Every month, he enters all his spending information into his computer. He even carries a notebook to detail his cash spending so that every penny is accounted for. Henry also balances his checkbook to make sure that everything is in order”. He can’t remember the last time his bank made a mistake, but he knows someone who once found a $50 error.

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If you spend seven hours per month balancing your checkbook and detailing all your spending (as Henry does), you may be wasting nearly two weeks’ worth of time per year — the equivalent of two-thirds of your vacation time if you take three weeks annually.

 

Suppose that, every other year, you’re lucky enough to find a $100 error the bank made in its favor. If you spend just three hours per month tracking your spending and balancing your checkbook to discover this glitch, you’ll be spending 72 hours over two years to find a $100 mistake. Your hourly pay: a wafer-thin $1.39 per hour. You can make more flipping burgers at a burger joint.

 

Focus On Your Big Financial Picture

To add insult to injury, you may not have the desire and energy to do the more important stuff after working a full week and doing all your financial and other chores. Your big personal financial picture — establishing goals, choosing wise investments, securing proper insurance coverage — may continue to be shoved to the back burner. As a result, you may lose thousands of dollars annually. Over the course of your adult life, this amount can translate into tens or even hundreds of thousands of lost dollars.

Note: If you make significant-sized deposits or withdrawals, make sure that you capture them on your statement.

 

Henry, for example, didn’t know how much he should be saving to meet his retirement goals. He didn’t review his employer’s benefit materials, so he didn’t understand his insurance and retirement plan options. He knew that he paid a lot in taxes, but he wasn’t sure how to reduce his taxes.

 

Prioritize The Money Activities You Work on

You want to make the most of your money. Unless you truly enjoy dealing with money, you need to prioritize the money activities you work on. Time is limited, and life is short. Working harder on financial administration doesn’t earn you bonus points. The more time you spend dealing with your personal finances, the less time you have available to gab with friends, watch a good movie, read a good novel, and do other things you really enjoy.

 

Make Sure You Always Have Enough Cash Balance

Don’t get me wrong — nothing is inherently wrong with balancing your checkbook. In fact, if you regularly bounce checks because you don’t know how low your balance is, the exercise may save you a lot in returned check fees. However, if you keep enough money in your checking account so that you don’t have to worry about the balance reaching $0 or if you have overdraft protection, balancing your checkbook is probably a waste of time, even if your hourly wages aren’t lofty.

 

Pay Bills Electronically

If you’re busy, consider ways to reduce the amount of time you spend on mundane financial tasks like bill paying. Many companies, for example, allow you to pay your monthly bills electronically via your bank checking account or your credit card (Note: Don’t use this option unless you pay your credit card bill in full each month). The fewer bills you have to pay, the fewer separate checks and envelopes you must process each month. That translates into more free time and fewer paper cuts!

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