What do you do if you go on vacation and wreak financial havoc? Or you find out you've been asleep at the financial wheel and haven't paid bills and your budget is blown?
Should you start micromanaging your money or simply keep managing your money as you have been? This depends largely on your financial personality and knowing your strengths and weaknesses.
For example, on any given day, week or month - whether today, three or six weeks from now - I need to know how much money is or will be in my account. But with random gray charges and eating out on a whim with co-workers and friends, it isn't as simple as plugging in my transactions in money-tracking services such as Yodlee or Mint.
I need granular details about how much money I can spend. I know how much goes toward rent, groceries and gas so I don't need to track and categorize my transactions insomuch as needing to forecast my cash flow. This is really important to me because the feeling of not knowing my cash flow, whether now or six weeks from now, doesn't sit well with me. The aforementioned random charges, eating out and impulse Amazon shopping prevented me from having an accurate view of my cash flow. You can see how this would be a problem.
So how do you figure out how your financial actions today affect your goals for tomorrow?
Micromanagement and autopiloting your money are two solutions for managing your money, especially expenses and cash flow. There is no right or wrong answer when choosing a financial management style. One style takes an active approach, whereas the other is more hands off. See which one is right for you:
Micromanagement. Micromanaging your money essentially means you watch every penny flowing in and out of your bank account. This means checking all your accounts incessantly, which may seem like a time waster to some but actually brings joy to the micromanager. Financial micromanagement for micromanagers is a soothing ritual because each time they check their accounts they are reassured they are in control. Not having this level of control can be unnerving and cause great distress. This can become a problem when it interferes with other normal daily activities. However, if it doesn't, then all is well. Ultimately, micromanaging helps you understand what expenses are coming out of your account as well as how much you will have today, tomorrow or next month.
Autopilot. Setting your finances on autopilot essentially means that you set it and forget it. You have a spending plan and you simply spend within that plan instead of checking accounts, expenses and cash flow constantly. Can one effectively manage the day-to-day nuances of money management via autopilot? Many would say this is possible. However the financial framework, which includes accountability, must be in place. Are detrimental spending habits in check? Are all players on the same page? In other words, if you're married, are both spouses in agreement with the financial goals and don't have to worry about one blowing available cash on a vacation or new tech gadget? Autopiloting happens when most, if not all, the pieces are in place, and you stay on track by budgeting your funds in a way that allows you to spend within certain guidelines.
Finding Your middle. There is no right or wrong answer as to which method you choose. If checking your accounts all the time and tracking every penny works then that's fine. Likewise, if you have a spending plan that allows you to put your money on autopilot that's great, too. What works for one may not work for someone else.
I chose micromanagement, and I actually like it. So far. Time will tell how long I need to do this, but it works, and helps keep my finances in check.
Ginger Dean is a licensed psychotherapist and founder of the personal finance website Girls Just Wanna Have Funds.
- Banking & Budgeting