Keeping track of your finances may be the hardest but most important thing you do in your life. Not only will it help you discover where you're spending or investing your money, but it will start to build better habits, because you are finally taking the time to become aware of where your money is flowing in and out. This also allows you to make better decisions going forward and take greater control of your life, instead of simply being a victim of your financial obligations or expenditures.
Technology can greatly help you in the arena of tracking your finances. While there are tons of apps out there than can help you get started, it doesn't have to be an app. I started using spreadsheets to track my net worth.
I began by creating a spreadsheet to track all of my bank and brokerage accounts. It was tedious and I had to update it every couple of weeks. I separated my personal accounts and retirement accounts into two different sections, which made sense to me since I can only access funds in my personal account, but tracking retirement accounts was still important from a net worth perspective.
Finally, I tagged or categorized each account as Cash, Stocks/Options, Bonds, Real Estate, etc. Once you understand how your money is allocated, this allowed me to make better decisions based on my age and risk tolerance. I bucketed each account into high risk vs low risk and tracked those percentages as a guide as well. Finally, I wanted to track all of these numbers over time, so I even grappled with Excel to create a simple graph to do so.
Note that the percentages above for cash, bonds, stocks, and other has changed dramatically over the years based on my personal life changes and financial education. This allocation between low risk and high risk investments is not necessarily suited for everyone.
Disclaimer: I don't use spreadsheets anymore. It was too tedious, and I discovered an app called Empower, which basically does all of this for you, and more. Best of all it's completely free. This app will automatically sync your accounts and graph your net worth, cashflow, and even give you recommendations on how to improve your financial situation. However, I don't regret taking the time to create the spreadsheet, because the time and effort it took to do it, helped me create better financial habits. It's the journey that makes who you are, not the destination. Now, I feel like it's just a part of who I am.
As James Clear puts it in his book Atomic Habits:
"The key to building lasting habits is focusing on creating a new identity first. Your current behaviors are simply a reflection of your current identity. What you do now is a mirror image of the type of person you believe that you are (either consciously or subconsciously). To change your behavior for good, you need to start believing new things about yourself. You need to build identity-based habits."
Everyone's financial situation is different, so everyone's journey to financial independence will also be different. Start with a goal and work backwards with what habits you have to obtain in order to meet that goal.
Example:
Goal:
I want to be debt free in <insert number> of years.
What do I have to do to achieve that goal:
Save <insert number> extra each month to pay off debt.
How do I do this?
-Reduce expenses by <insert number>
-Increase my [active] [passive] income by <insert number>
Who do I have to become or surround myself with?
-People who have figured out how to become debt free
It's not easy, but you have to start. Even the smallest of actions can start to build momentum.