After deciding that it’s time to get a handle on your finances, find a way to accurately track the way you handle everything involving money. Before deciding to take action, you may have estimated your income and expenses, but now the details matter. Here is how to get to the details.

Every cent is important at this point. That will change later on; as you grow as a master or mistress of your money, you can ease the pinch on the penny. But in the beginning of this journey, you should record everything. From the $5 check from your grandmother on your birthday to your $75,000 annual performance bonus, and from the $1.99 music download to the $28,150 car, you must write it all down in some form.

There is a purpose to this madness. By tracking every detail of your money, you get a real picture of how much you’re spending. Many people don’t know off the top of the head how much they spend on lunches with coworkers every month or how much they spend on cigarettes or coffee. This process can be very enlightening, and in some cases, it might provide motivation in itself. By tracking your finances accurately, you’ll be poised to make better decisions about where to spend your money.

You don’t need to start with fancy software. Sometimes, low tech can be most effective, especially when starting out. Pads and pencils are portable as well, and they are great tools for keeping track of your cash spending while you’re on the move. The first step is to choose the method that will work best for you.

Desktop software

Intuit Quicken is the king of financial tracking software. Unfortunately, the software is not cheap. Quicken 2009 Deluxe, the most basic version available this year, costs $45 through Consumerism Commentary. You can connect to banks to download your deposits and withdrawals and credit card companies to download your charges and payments. Microsoft Money Plus is another option offering similar features. Both of these programs cost money to use. For those who don’t use Windows-based computers, MoneyDance is a good choice, but this software is not free, either.

If you’re looking for software that is free to use, take a look at GnuCash. GnuCash also has a portable edition which allows you to take your financial data with you and access the program anywhere you can jump on a computer. (Thanks to Dave Stinner who reminded me about Gnu Cash.)

Web software

Quicken Online Edition is now free. Here’s a review of the service. Mint (reviewed here), Geezeo, and Wesabe offer similar features to help you track your money.

While web software offers seamless integration with online access to your banks, it has some limitations. These web applications are not designed to keep track of your cash spending, which may be the most important requirements for accurately tracking your expenses.

Mobile software

Keeping track of the money you spend while you’re out is a challenge, at least for me. It helps to ask for receipts for all transactions so you can collect them and record the amounts at night when you’re home. I’m experimenting with software for mobile phones that allows you to keep track of your spending. SplashMoney works with my BlackBerry as well as iPhones. For Quicken users who enter transactions while away from the computer and sync them to desktop Quicken later, Pocket Quicken may be a good option. This software runs on Palm and Windows Mobile devices.

Paper

For people who prefer old-fashioned methods and have unlimited filing space, paper accounting is an option. Download this ledger paper and print a few pages. Use a separate page for each account, and keep track of your transactions just like you would with software. If you don’t like my ledger paper, try these templates, available for free.

Tips for accurate accounting

• Collect receipts for all transactions, including the purchases using cash. “Cash” should be an account in your software or on paper. Your starting balance is amount of money you have in your wallet on the day you begin tracking.
• If possible, keep notes about your expenses while you’re away from your computer or desk. Carry a small pad or use mobile software like those listed above.
• Every month, or more often if you have online access or automatic transaction downloads, compare what you record with the activity your bank has recorded in their systems. This “reconciliation” ensures you have accurate records for your bank accounts, investments, and credit cards.
• The web software listed above usually download your bank activity automatically. In some cases, the application will try to categorize your spending based on the vendor name or similar transactions by other users of the software. This “artificial intelligence” will make errors, so review every transaction to categorize the expenses and income properly.
• ATM withdrawals should be recorded as a transfer between your savings account and your cash account, not an expense. Cash deposits should be transfers as well.

As time goes on and you become more familiar with your finances, you can afford to be less aggressive about recording every cent. I suggest following the above suggestions and keeping track of everything for at least several months to get an informative view of your money.

If you have any additional tips for tracking your money accurately, please share.

Image credit: Refracted Moments

Last Monday, I offered a copy of Quicken Premier 2009 to two Consumerism Commentary readers who have suggestions for avoiding overdraft fees.

I’ve extended the giveaway for an additional few days, and the winners will be announced at the end of the week. There is not a large number of participants, so your chances of winning are still very good. If you’re interested, please read about the giveaway and leave a suggestion or comment. Good luck!

Starting today, Quicken Online (review) will be free for all customers. Quicken Online is the web-based financial software that replaces many of the features of the desktop versions of Quicken and competes with Mint (review), Geezeo, and several more emerging web applications.

Until now, customers who wished to use Quicken Online were required to pay a monthly fee. I mentioned in my initial review in December 2007, “For software I will likely not use often [because I prefer the full-featured desktop software], for me it will come down to price. $2.99 per month is actually a very competitive price for an online service, but the other offerings are currently free (though full of advertising).”

The fee elimination will allow Quicken Online to compete with other free web-based offerings. If you’d rather work with the desktop software, as I do, you can find discounts on the 2009 versions of Quicken here.

I am not a Mac user, so until recently I was unaware that Intuit’s Quicken offerings for Mac are below standard in comparison to Intuit’s similar products designed for computers running Microsoft Windows. It looks like the inferior software is getting a much-needed rewrite from scratch and a new name, “Quicken Financial Life for Mac.”

This should be good news for a number of unhappy customers.

Unfortunately, even this new product will not have the same features as Quicken 2009 for Windows. Like Quicken Online (review here), Quicken Financial Life for Mac will focus on cash flow without sophisticated features for tracking investments.

The new version of the software will provide basic information about your investments, however. Here is a screenshot of an investment summary.

Here are some interesting items to note, according to the product’s FAQ:

The software will be released this winter but you can sign up to participate in the public beta test. To run the software you will need the “Leopard” version of Mac OS. You can import old Quicken Mac data files without losing any information, but you cannot import Microsoft Money data files.

Those running an older version of Mac OS, those who want to track individual investments, and those who want customized reports are encouraged to buy Quicken Mac.

I opened Quicken this evening to update a few financial items and I was distraught by what the software was trying to tell me. This is something you never want to see in a piece of financial software that analyzes your spending and offers hints for managing your money.

I’m actually a little insulted. It’s very rare that I eat at Dunkin’ Donuts. In fact, a quick search in Quicken tells me that I’ve eaten there four times in the past four years. It must be time for my yearly doughnut.