My grandmother still uses good old-fashioned paper and pencil to manage her money. I rely on a software package. Other options include web applications, spread sheets and a few other money management options. But how do you decide between all the options? How do you know which one is best for your situation?
There is no universal solution for tracking your money. Some people can even get away with not keeping track of their finance — although such people often have extremely simple money situations (or no money at all). But there are some ways to narrow down your selection.
When are you willing to work?
Many people can immediately tell that paper and pencil money management isn’t for them. After all, it can take a lot of work to make sure that you copy down all of your financial information to a central document. Many software solutions — especially web applications — have the ability to import your bank records, along with other monthly financial data.
If you choose software, the effort required of you in the long-term will be reduced. In the short-term, however, you will probably have to put forth more effort to set up your system. Furthermore, any time you change banks or other financial companies, you’ll have to update your system significantly.
How paranoid are you?
Managing your money through a hard copy ledger system or a spreadsheet has benefits if you are concerned about your privacy. Because money management applications have to retrieve your financial data, there is a chance (generally small, but still present) that someone else could get a hold of that information and take advantage of it. The risk grows if you use a web-based application. The makers of these applications take precautions, but it’s hard to tell what is enough.
How aware of your finances are you?
One of the benefits of having to import your own information into your money management system, rather than having software take care of that detail, is that you generally develop a better idea of your own finances. If you already have a good sense of where your money is, that’s great. If you don’t, though, entering your information by hand can help you build that sense.
In the end…
For most people, I recommend finding a money management software package that you’re comfortable. Most of us just won’t keep up with writing down all of our own finances, or even entering our data into a spreadsheet. Both these options have advantages, but it’s generally more practical to use a software solution. I do think that software that you install on your computer, rather than web applications, are usually a better choice for money management. There are some privacy concerns with online money management and it’s easier to back up your information if it’s already on your hard drive.
