When I was younger, I didn’t track my spending. I kept a checkbook register, but that was out of necessity; I constantly flirted with a zero balance, and I had to know precisely how much was left in the bank so I wouldn’t overdraw my account. (I wasn’t so good at that game, actually; I had plenty of overdraft fees.)

Ah, the good ol’ days…

When I decided to get out of debt, I had to learn to track my income and expenses. By tracking every penny I spent, I couldn’t lie to myself about how often I ate in restaurants, how much I spent on comic books, or how little I set aside for retirement. The numbers revealed my financial habits, for good or ill. (Mostly ill.) And, in time, the numbers made it easier to change these habits.

After I got out of debt, expense tracking seemed unnecessary. As long as I kept my monthly expenses below my monthly income, what was the big deal? For many people, it’s not a big deal. If they spend less than they earn, that’s all that matters. But I missed having detailed records of my income and expenses. I craved the charts and graphs. Plus, I felt a little out of control.

Back to basics
Last fall, I decided to get back to basics. To start, I set up an account at Mint, an online money management tool. The interface seemed slick, and I liked most of what I saw, but with one exception — the darn thing wouldn’t connect with my investment accounts at Fidelity. After six weeks, Mint still couldn’t connect to my investments (plus the app never really clicked with the way I worked), so I canceled my account.

Next, I gave Yodlee MoneyCenter a try. Yodlee found my Fidelity accounts right away, but this online tool still didn’t match the way I worked. It didn’t feel right.

Then it occurred to me: Don’t I already have a piece of personal-finance software I know how to use? A piece of software that already has most of my account information? One in which I’ve already defined my custom categories (comic books, “laundry agreement”, “faux mortgage”, and so on)? One that contains several years of my financial data?

Of course I do.

This week, I re-visited my old Quicken install. The program is ancient in computer terms: It’s Quicken 2007 for Mac, and many of the features (like downloading stock quotes) no longer work, which is one of the reasons I gave up on it in the first place.

But the more I thought about it, the more I realized that Quicken was perfect for my needs. I don’t want all of the automated features. The whole reason I want to track my spending is to raise my financial awareness. Entering things by hand — which is how I’ve done it for the past five years — forces me to notice every transaction.

So, I spent most of Thursday afternoon setting up Quicken. It may seem crazy, but I had a blast reconfiguring my investment accounts, entering transactions from my receipts, and looking at charts and graphs. I forgot how much tracking my expenses makes me feel like an active participant in my own financial life instead of a passive observer.

Setting up my Quicken install
It was actually fun to enter my expenses into Quicken.

Do what works for you

I took a break at one point yesterday to chat by phone with MP Dunleavey, who writes about family finances for Money magazine and DailyWorth. I mentioned that I’d just finished setting up my investment accounts in Quicken.

“I tried Quicken once,” Dunleavey said. “I didn’t like it. Now I use Mint, and I think it’s great. It gives me just the amount of information I need.”

Our brief conversation highlights an important aspect of expense tracking. Namely, there’s no one right way to do this. If you choose to track your spending, the most important thing is to get it done. For my wife, that means using an Excel spreadsheet. For Dunleavey, that means using Mint. For me, that means using an outdated version of Quicken. For you, that may mean a spiral notebook with different colored ink for each spending category. It doesn’t matter. What matters is that you do what works for you.

Small change
Tracking my expenses is just one piece of the puzzle. I intend to make a handful of other small changes during the year ahead.

  • As mentioned in November, I’ll eventually create a a spending plan — a sort of loose budget for my money. I want to track my spending for a few months first, though.
  • I’ve already re-instituted my $200/month adult allowance. This is cash I can spend on anything I want without worrying whether it’s sensible or not.
  • Plus, I’ve begun to reduce my credit card usage. I’ve written before about the “pain of paying” with cash, and I’ve found recently that it’s really true for me. When I use credit — even though I pay the balance in full every month — I don’t really feel it. But when I use my allowance money? There’s an almost visceral pain as I part with my hard-earned dollars. So, I’m going to change how I use my credit card: travel and regular bills only for now.

I’ll probably make other small changes during 2011 (like using targeted savings accounts more often), but this is plenty to start with.

My financial situation is comfortable now, and I want to keep it that way. To that end, I’m trying to balance the rewards of frugality and thrift with the habits that put me here. I think there’s room for both. In fact, I think the habits will help multiply the rewards.

I’m curious: Those of you who have no debt and plenty in savings, have you abandoned some of your old habits? Which ones? Or, if you abandoned habits, have you ever gone back to pick them up again? And if you’re still working through the first two stages of personal finance, which habits do you think you’ll keep later? Which do you think you’ll abandon?

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