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Can a Financial Journal Help Your Finances?

When I was younger, I was quite involved in keeping a journal. While I still have a journal, I don’t update it very often. Journaling seems like a quaint pastime, a relic of the past, when people still saved handwritten letters from friends and family. However, journaling can still have its applications today — including in your finances.

One of the ways that you can learn to make better financial decisions is by understanding what you are doing with your money, as well as why you make the money decisions that you do. Journaling can help you do both of those things, providing you with greater insight into your financial habits and motivations.

Track Your Spending

At the most basic, practical level, a financial journal can help you track your spending. When preparing a practical budget [3], it’s important to realize where your money is going. Knowing what you are spending your money on is vital if you want to make changes. How will you know which items you need to cut from your budget if you have no clue as to where your money is going?

You can use a financial journal to track your spending. A small notebook, carried around with you, can serve this purpose easily, although many of those who are more tech savvy use a note-taking application on a mobile device for this purpose. This isn’t just about going back over automatically generated categories by a personal finance program; this is about the physical act of drawing attention to your spending choice — and how much it cost you — by writing it down immediately.

Not only can this provide you with a record of what you spent, and where you spent it, and what you spent your money on, it can also force you to think before you spend. When you have to record your expenditure, it forces you to stop and take stock of the situation in the moment. Having to actually write something down just before you spend the money, or while you are in the act, enforced ideas of conscious spending that aren’t always viable when you look back on a simple card swipe later. In some ways, it’s a lot like using cash [4] to really bring home the fact that you are spending money.

Why are You Spending the Money?

The more emotional part of a financial journal is actually recording your thoughts and feelings as you spend your money. Make small notes next to the dates and amounts and items about what is going through your head. Try to pinpoint your motivations for the spending. Did you stop off at that restaurant because you’re hungry? Why are you buying those new shoes? Are you trying to impress someone? How did you feel after the purchase? Did remorse set in? Or were you giddy?

It can also help to revisit your entries later and write down how you feel about the purchase now. After a couple of weeks, are you bored with the item you were so excited to get earlier? Why are you tired of it now? Do you wish you had spent the money on something else? Looking at your purchases in this way, and writing down your thoughts and feelings, can really help you see why you make the decisions you do. It can also help you spot patterns in your true priorities [5] and desires. Once you understand your motivations, you can change your behaviors to match what’s important to you, as well as make better spending decisions.

What do you think? Is a financial journal a good idea?

(Photo: JoelMontes [6])