Money Monday 8

A Musician’s Guide To: Tracking Expenses, Budgeting & Cash Flow

Part 1:  Tracking Expenses

INTRODUCTION:

• Do you know your net worth?

• Do you know exactly how much money you spent yesterday, down to the cent? 

• Do you have a mental spending limit?

• Do you know how much profit you are making each month?

If you answered no to any of these questions, and want to get a better handle on your finances, this mini-series is for you.

As self-employed musicians, it's important for us track our expenses, budget, and manage cash flow, not only for keeping our business finances organized come tax time, but also to maintain/manage our financial stability and ensure the longevity of our career.

Many of the principles and practices that are important for us as musicians to manage our finances effectively can be applied to anyone in any profession.  

By tracking our expenses, creating a budget, and prioritizing cash flow, anyone can maintain financial stability and ensure long-term financial success.  These are universal principles that can benefit anyone looking to manage their finances effectively, regardless of their profession.

Step 1:  Net Worth

If you answered Yes to the first question, you can skip this section. 

Getting a handle on your net worth is a great place to start when it comes to managing your finances.  Your net worth is essentially the difference between what you own (your assets) and what you owe (your liabilities).  By calculating your net worth, you'll have a clear understanding of your overall financial situation and how much money you have available to work with.

To calculate your net worth, you can add up the value of all your assets, including things like your savings accounts, cash, investments, and property, and then subtract any outstanding debts or liabilities you have, such as credit card balances, loans, rent, or mortgages.  The resulting number is your net worth.

Once you have a clear understanding of your individual net worth, you can use that information to help you make informed decisions about your finances.  

For example, if your net worth is negative, focus on paying down debt and building up your savings.  If your net worth is positive, consider investing in additional assets or expanding your investment portfolio.

Calculating your net worth is, in my opinion, the best place to start to get a handle on your unique money situation and start making informed decisions about your day-to-day finances.

Step 2: Track the $ OUT

Tracking expenses is a critical step to budgeting and managing cash flow effectively.   They all go hand-in-hand, but keeping track of ALL the money flowing out of your life, in my opinion, is the best place to start.

Without a clear understanding of where your money is going, it's difficult to create an accurate budget or make informed decisions about your spending and saving.

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Before you start:

Simplify your mindset: I know it seems daunting, but tracking expenses doesn’t have to be a complicated task.

However you decide to track your expenses, consistency is key.

The best way to keep something consistent is to simplify the process for yourself.  If it’s a chore, it won’t become a habit.  

The simplest way to track your expenses is to do it immediately after money flows out of your life.

Having a way that works for you, and that can become habit to quickly make note of purchases as they happen, will take the daunting task of tracking everything out of the equation.

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 Our #1 Tracking Tool:  Spreadsheet 

Tyler is the money tracking KING.  

To track our expenses, he set up a monthly cash flow spreadsheet in the Numbers app, since we both have apple devices, we can share the spreadsheet between the two of us for easy access.

Every time we make any purchase, it goes in this month’s spreadsheet (all within the same numbers file).

Using apps and other technology to stay on top of your spending can be an easy way to track expenses.  Some also prefer pen to paper; keeping a financial journal.  

OUR SPREADSHEET COLUMNS FOR TRACKING EXPENSES:

1. Date
2. Category
3. Description
4. $ OUT (amount spent)

Tip for tracking expenses on-the-go: 

• What we do:  Send a DM or Text, or Email of what we purchased and the exact amount spent.  That way it’s time stamped with the date as something “unread” when we have the chance to properly plug it into our spreadsheet.

Tip for simplifying your monthly tracking:  

• Automate your monthly expenses so they appear at the top of the spreadsheet each month.  This includes subscriptions, insurance payments, phone bills, rent etc.
• By doing this, you will know exactly how much money is already spoken for each month and this will be a crucial first step when it comes to budgeting & managing cash flow.

 THE PAST, PRESENT & FUTURE 

  PERSPECTIVES AND TIPS TO KEEP IN MIND:  

PAST: Don’t beat yourself up for past expenses.

This information can truly be eye-opening for many people, as it may reveal that they are spending more money in certain areas than they realized or that they are spending money on things that are not aligned with their values or goals.  Allow yourself to recognize your financial reality without judgement, and prepare yourself to see these numbers without fear.

PRESENT:  Track EVERYTHING, all of it, in the now.

It's important to keep track of every purchase, both big and small. You'll have a better understanding of where your money is going and how you can adjust your spending.  

Do it “now” when you can.  The sooner you add the expense to your spreadsheet, the simpler your tracking experience will be.

FUTURE:  Focus on your goals, what is it you are trying to achieve? 

Tracking expenses helps people to understand the impact of their spending decisions on their overall financial health.  For example, they may see that spending money on dining out or entertainment is taking away from their ability to save for their future goals, such as buying a home, starting a business, or saving for retirement.

By tracking every dollar flowing out of your life, you can identify areas where you may be overspending and make adjustments to your future budget or spending habits accordingly.

Overall, tracking expenses is an excellent tool for opening up people's minds to their financial reality because it provides them with a clear and detailed picture of their spending habits and the impact those habits have on their overall financial situation. This can be a powerful motivator for people to make positive changes to their financial habits and achieve their long-term financial goals.  

Once you understand your spending habits, you can then dive into creating a budget for yourself, identifying areas where you can cut back, and the the fun part, adding in your income so you can manage cash flow and monthly PROFIT!

Up Next:

Part 2: Budgeting

Part 3: Cash Flow