Sunday, December 30, 2007

end of the month Quicken activities

Why do I use Quicken?

It's end of the month. This is when I do most of my Quicken activities. Download all the electronic statements, review all the paper statements. Dutifully download or enter each transaction into Quicken. I place each transaction into the appropriate category. I keep all my receipts so I cross reference each receipt that with the bank statement. (More on keeping receipts later, most people think it's weird but let me tell you, your business is what your receipt so alway keep all your receipts!) Finally, I reconcile each bank statement and make sure all my incomes and expenses are tracked. It take me about 4 to 8 hours over a few days. 4 to 8 hours a month just for bookkeeping. Ugh.. that sounds like a lot and what do I get out of all this?

First, a sense of accomplishment. This is not a minor task, but it's a task that I do every month. To me, it like a badge of honor, a small and quiet one. It should not be a big deal but just something that needs to get done.

Second, I know where my money is going. Honestly, I'm ALWAY amazed at how much I spend at the end of every month. Let me tell you, I'm a pretty careful guy when it comes to spending. Many people would call me frugal in the polite sense. Not quite a cheap ass but definitely working all the angles to get a good value. I have a good head for details, but I alway surprised by the total amount. I can recall many transactions but the total amount is much higher then I expect. This was an early and important lesson for me. You can't trust your instinct on the total spending. Many people wonder where did all their money go. I don't know anyone who can guess their total monthly spending and get it right. I think people tend to forget the common every day spending like coffee, lunch out, grocery, and electric bills. We tend to remember the special sale or unusual spendings. Therefore our mental map of our spending habit is just completely off base. (My random musing is leading to an interesting idea for me.. I should do some research on that idea. )

Third, I know where my money is coming in. This is the most important part. This is the big picture. I have multiple sources of income from real estate rentals, salary, consulting, and other businesses that I manage. Every month, this is where I know if I achieved my desired savings rate or not. I don't keep a budget because I don't want to be a slave to my spending. But I want to plan and save for my future goals. So every month, my focus is always on where is the money coming in and how I can expand the existing sources or acquire new sources.

Back to the original question, 4 to 8 hours per month spend on bookkeeping. The end result is an conscious awareness of the state of my finance. I think that awareness is well worth the price in time. An awareness is nice, but I have not show how Quicken actually affect my decisions. The awareness of my finances is only the first of many many steps necessary to make solid plans.

That will be a topic for another blog.

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