The TWO things you need to keep your finances under control

Since it's the beginning of the month, this week I'm bringing a post that is very important to me: what I do to keep my finances under control and sleep soundly. It comes down to TWO things:

• Knowing WHAT money I have
• Knowing HOW my money moves

That’s all it takes. And I don't need to do it every day either. I do it once a month (always on the 1st, if I can).

Knowing WHAT money I have

This means knowing in detail the value (in money) at a given date (usually the last day of the previous month), of all my assets (the value of my home or homes, bank accounts, investment accounts, etc.) and all my debts (credit card balances, mortgages, loans, etc.).

To do this, I keep a list of all these accounts, and every month I spend some time logging into each one and writing down the balance. Some of them, like properties, don't change in value every month — though we can always update their estimated value from time to time.

Once that's done, the difference between assets and debts is my "net worth". This is the number that really matters, and above all, seeing it grow year after year (even if there are fluctuations from month to month).

Knowing HOW my money moves

This is about knowing how much money comes in (salary, interest, dividends, sales, rental income from properties…) and how much goes out (household expenses, groceries, leisure, health, travel…).

To do this, I also log into all my banks and download the transaction report (in Excel, CSV, plain text, or whatever format is available) for each account and each credit card.

Then I put them all together and categorize them (this line is groceries, this line is my salary, etc.).

This is, without a doubt, the most boring part, but I now have tools to do it automatically and privately (without sending data to someone else's cloud).

This way I can see exactly how much I earned and how much I spent during the month, in full detail.

And on top of that, I can also see how much I saved (or didn't). Again, this savings figure (measured annually, not month to month) tells me whether I'm on track or not.

And that's it: your net worth and your savings tell you how you're doing financially and allow you to make informed decisions about the future.

I encourage you to try this every month. It takes me about an hour — and that's because I have a lot of accounts (that's a whole other story). If you'd like, I can help you get this process up and running.

In the next post, we'll go through a list of questions I often get about this, and how I handle them.

PS: Knowing what I have and what I save is what leads me to the next step: WHERE I invest it. But that's for future posts.