How to Easily Track Expenses and Create a Budget

Leave it to us! No kidding, we’ve implemented a new solution that will allow us to track all your expenses, categorize them, and then create a budget accordingly. Now you are probably saying to yourself, this seems like a lot of work so why would Elmwood offer to take this task on? The answer is that it really helps both parties involved. Below we will lay out both why, and how we plan on accomplishing this task.

Looking back for a moment, it seems like long gone are the days when you’d ask someone what their New Year’s resolution was and they would reply, “Balance my checkbook!” Balancing one’s checkbook just doesn’t seem all that commonplace anymore, especially for young families. Perhaps the main reason may be due to the advent of online banking and bill pay, which means that writing individual paper checks are few and far between. It makes sense because as soon as you login online to pay your bills, your financial institution immediately shows you how much money you have. Isn’t that really why we balanced our checkbooks in the first place? Yet having instant online access displaying account balances still doesn’t speak to the question of how we are spending our money.

A few of the reasons clients hire Elmwood is to assess and plot out how to achieve certain financial goals such as a new house, a remodel, paying for college, a job change, or plan for retirement. To map these out accurately we need the most detailed expenses possible for a couple of reasons. First, because it’s natural that our expenses will change over time. Child care expenses, for example, eventually fall off and mortgage payments at some point will also go away. Some of our expenses also grow at different levels of inflation, so we need to account for these differences. If during our planning process you fall short of a goal, then we need to come up with a solution how to get you there. One of those answers may involve advising you on how much you need to reduce your budget. When it comes to financial planning, expenses really do matter and it’s paramount for us to have good data so that we can provide you with our best advice.

So how do we do this? The main tool we use is in a software called Yodlee, which was the original expense categorizing engine for Mint.com. The process is simple. First we send you a secure link to enter user names and passwords for all the financial institutions you do business with, including checking accounts, credit cards, mortgages, student loans, insurance and other outside investment accounts. Through this secure link you will be asked to enter the respective user ID’s and passwords confidentially. The rest is history, literally! This allows us to receive your transactional data and categorize your spending into easy to understand spending terms. It’s not perfect, but for the most part we get a good read on your budget right away. It’s particularly helpful for discretionary spending on things like groceries, restaurants, and travel. Once your spending patterns have been documented, we can then go back and create a budget based on this data, and you can also monitor your budget by logging back into the software.

Why again are we doing this? We’ve experienced over the past couple of years that there is a real need in this area as many, many people have asked us for help in their budgeting from both prospective and current clients. In most cases they need help trying to get a handle discretionary spending, and they do not look forward to the idea of having to actually sit down and figure it out. Yet without this data, it creates a real bottleneck in our financial planning process. We really consider the expense data used for clients as the single most important variable in generating our projections. If we can get more accurate and timely data, then we can produce a more accurate and meaningful financial plan.

That is why we are so excited about the Yodlee software and how it can help our clients. Whether you are a current or prospective client, please let us know if you would like more detail on how we can help streamline your personal finances.