Before buying software, try listing expenses with pencil

Your Money

October 09, 2005|By HUMBERTO CRUZ

You're always recommending that people track their expenses, but I never seem to be able to keep at it. Is there any software that would make this process less tedious and cumbersome?

Either of the two leading personal finance programs, Quicken (www.quicken.com) or Microsoft Money (www.microsoft.com/money) will do the job. But before you rush out to buy either, you need to understand what will be required of you and why.

You want to track your expenses so you know how much you're spending for what. If you don't know, how can you be sure you're not wasting money on things that are not important?

That was the motivation my wife, Georgina, and I had more than 25 years ago when I started keeping track of expenses - not to scrimp but to spend intelligently on the things that mattered to us (including saving for the future).

With no personal finance software to assist us then, I kept a small notebook in my shirt pocket where I jotted down everything we spent each day and for what.

At the end of the month, I totaled everything and divided the expenditures into three groups: necessities, nonessentials but nice things to do or have, and outright "waste," things that may have seemed important at the time but gave no lasting pleasure.

This exercise alone, which anybody can do with just pencil and paper, will do more to set your financial house in order than anything I can think of.

Today, thanks to personal finance software, it takes only seconds to generate detailed spending reports.

But you need to be committed to enter your expenditures in the computer program, or at the very least, regularly download your bank and credit-card statements.

Despite the ease of downloading, I still prefer to enter my expenditures manually. Doing so as expenses are incurred doesn't take that much time and gives me a better feel for where my money is going.

It's also easier to categorize expenditures correctly - for example, $10 of the $62 spent at the grocery store the other day was for non-grocery items.

And no software can give you an accounting of how you spend the cash in your pocket - there are no statements to download - unless you write it down yourself.

I recognize, of course, that not everybody will want to be so meticulous. You may want just a broad snapshot of your spending, perhaps focusing on major areas where you could cut back.

On that score, a new "instant insights" feature of the recently released Quicken 2006 version can be quite useful.

With just one click from the program's checking and credit-card registers, for example, you can get a "mini-report" showing how much you've spent on specific categories over a particular time period, and how the most recent expenditures compare to the average.

For instance, you can see whether the latest phone bill has been paid, and whether it has gone up in the past few months. Reports on how you're spending your money have been available for years in Microsoft Money and previous Quicken versions, but not with just one click.

"Our research shows the No. 1 reason people buy the program is to see where their money is going," said John Flora, product manager for Quicken.

"But our research also shows that most people either don't bother to budget, don't know how to do a budget, or start one and then give up." For them, personal finance software can be a big help.

Another neat feature of Quicken 2006 is the ability to attach electronic images of receipts, canceled checks, account statements, warranties and other documents to your Quicken transactions or accounts. For example, I now routinely attach my electronic credit- card statement to the transaction in Quicken in which I pay the monthly balance.

As long as you back up your information regularly (I would also take the precaution of protecting it with a password), this feature allows you to dispense with mountains of paper, or at least file them out of sight.

Finally, rather than dedicated personal finance programs, the computer-savvy consumer might consider using the versatile Microsoft Excel spreadsheet program, which is often included in the software pre-loaded in many computers when you buy them.

For this group, I recommend the book Manage Your Money and Investments with Microsoft Excel, by Peter Aitken, which includes a CD-ROM containing all templates covered in the book. For more information on the package, check out www.quepublishing.com/title/0789734281.

Humberto Cruz is a columnist for Tribune Media Services. E-mail him at yourmoney@tribune.com.

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