Like many people, I have a personal finance spreadsheet. I use it not only to keep track of my current financial position but also as a way of seeing how my finances are progressing towards the targets that I have set myself. Indeed, I think the key role that a personal finance spreadsheet can play is to get you into the discipline of setting short and long-term financial targets and checking to see how you are performing against these targets. In effect, it helps you to take control of your finances.
It's worth starting by saying that there are a range of financial money management tools out there, such as Microsoft Money, that can be used. However, my preference is to stick to my spreadsheet as it's free and I can tailor it precisely to what I would to record and measure. Leading on from this, it figures that you can decide what tabs you want to set up within your spreadsheet. However, I've listed some of the main categories that will typically be worth monitoring.
1. Your bank account balances:
It is useful to track the balances of the various bank accounts that you hold. It is also useful to split out the accounts that form your Assets (savings accounts and current accounts) from the accounts that form your Liabilities (Mortgage, Loans, credit cards).
Whilst it's useful just to track the current balances, there can be other bits of analysis that we can do on these accounts. For example, I am allowed to put up to 3,600 pounds into my ISA tax-free savings account every year, so I like to keep track of how much more I can pay in during the tax year.
2. Share Portfolio:
For those who have shares, it can be useful to keep track of which companies or funds you have, how many shares you have with each company, what price you bought the shares at and what price the shares are now. I then use the Motley Fool website to get updates on the share prices of the companies that I hold and I enter the figures into my spreadsheet. Having done this, I can see whether my investment has made me money or lost me money, in paper terms at any rate.
The one word of caution that I would flag up is the danger of micro managing your share portfolio. Often, when we buy shares, we are buying into the long-term performance of a company. Constantly looking at short term price fluctuations can cause us to lose site of our investment objectives and may lead to a decision to trade on the share too early. This is particularly true, I think, during periods of great economic instability when share prices can be up and down like a yo-yo.
However, there is undoubtedly value in keeping track of your investments and the personal finance spreadsheet is a good way of doing so. You can also keep track of any dividend payments that you've received and write in any notes about the companies that you may have picked up from their annual results of the media.
The other share-related thing, that you can use your spreadsheet for, is to keep track of the share prices of any watch-list companies that you might consider buying into in the future.
3. Current Costs:
Your spreadsheet should detail your current costs. You may find it useful to split these into your regular fixed costs (such as utility bills, mortgage payment, etc) and your variable costs (such as groceries, entertainment, etc). The level of detail that you choose to go to is up to you but this can be a very effective way to properly understand what you are spending money on. It can also be the starting point of finding ways to reduce your costs, thereby increasing your monthly disposable income.
4. Retirement objectives / Pension details:
We commute into work each day and work ourselves to the bone, so it's worth pausing to think what the end goal is. Hopefully, it is to reach a position whereby you won't need to work anymore and can retire in comfort. Your finance spreadsheet should detail the amount that you are paying into a pension and an estimate (if possible) of the size of pension that you might expect to receive. I also like to factor in the value of savings and shares that I feel I need to accumulate in order to boost my retirement income.
Summary:
Creating a personal finance spreadsheet can be an excellent way of better understanding your current financial position and can help you to work towards the achievement of your longer-term financial objectives. However, it will really only be effective if you make it a living document and regularly update it. Taking even twenty minutes of your time every week to review the spreadsheet will help keep it up to date and is a small sacrifice in the greater context of your financial wellbeing.