I wrote some months ago about needing to get my financial affairs in order. I decided that it was worth at least $240 for me to arrange my books - $80 for new financial record-keeping software, $80 to learn how to use it, and $80/hour for someone to look over my finances once I made them presentable.
I bought an updated copy of Quicken Home and Business, a software program for tracking your income and expenses. I carry that around on my laptop and download my credit card transactions from hotel rooms in Seoul or Switzerland (it's a good idea to check your Quicken on the road, while you still have a chance of remembering that KABUSHIKIGAISHIYA NIHONKA is the name of the place you bought your PlayStation 2).
I've actually been filing my accounts with Quicken since 1998. I have a lot of data that I've been just cramming in this program. Somehow I ended up with three year old un-reconciled transactions and 19,000 in an account labelled "Loose Change." It was time for me to get my Quicken in order, to better separate business and pleasure, to bill my clients for expenses, to keep track of invoices and payments.
After months of asking about, I finally searched the web for "Quicken Lessons." There were some cheesy CD-Rom tutorials, but I wanted personal tutorial. I found The Jackson Group, a small firm in New York City that specializes in Quicken-related financial services; in my case, examining people's personal Quicken account files and teaching them how to better use the software. I needed concepts in personal financial management - I didn't want to know, "how would I use that function," but I wanted to know, "why would I use that function?"
I sent Ken Jackson a copy of my five year old Quicken file. He reviewed it for a day, and then this afternoon we had a productive and entertaining hour long phone tutorial. I've shared some of what I learned below.
Ken is against automatically downloading transaction histories from banks and financial institutions. "You end up having to fix the transactions yourself nearly all the time," he observed, "so you might as well enter them by hand."
I was flabbergasted - I use my credit card constantly so I can just download the transaction information without having to save too many receipts. But I must do a better job of reconciling my accounts then. Ken pointed out that I can call my credit card company to follow up on a charge - they might have more information on the type of business it was (like MIOFURAZA where I spent $78.55 in April last year - what was that?).
Reconciling is key - without fully indexing all the transactions, the reports are generally meaningless and you can't keep up on your balances. In addition, indexing something with a payee of "ATM Deposit" is a useless holdover from automatic downloading - I should be changing the payee to reflect my client name, so I can search and read reports easier.
I've been at a loss with what to do about ATM withdrawals for as long as I've been tracking my spending. I can't imagine saving all of my cash receipts. I tried entering each of my cash purchases in on my Palm back in 1998; that lasted about two days. Ken confirmed what another freelance writer Douglas Rushkoff told me years ago, for cash spending on business-related expenses, you estimate how much you spend on small transactions in a month, and save receipts from big cash purchases. So maybe I spend $20 a month on technology magazines; I can use a scheduled transaction to deduct that much from my "Loose Change" account every 30 days. Or if I take a $60 cab ride, I save the receipt and deduct it from Loose Change for that month. Then I reconcile my ATM withdrawals with what I've spent on business from my Loose Change account - the leftover money, the un-accounted-for cash I put into a category for personal spending. This is a great relief - somehow I thought I had an obsessive-compulsive hangup that I should use this software to track absolutely everything, so nothing can come out uneven! I couldn't abide by that so I was just mis-handling my cash accounts. Ken gave me a good way to sort that out.
This seemed like a no-brainer after Ken explained it to me: put expenses and reimbursements related to clients in the same category. Then you can check to see if anyone is behind in paying you. I hadn't been using Quicken to track clients and expenses since creating new categories for each client seemed unwieldy. Ken briefly explained Quicken's system of Classes, a good way to add a second layer of categorization on top of the categories. Set up a class for each client, and then each transaction can be filed or sorted either by class or category. This would remind me that I still haven't billed that particular guy for those plane tickets!
Ken also looked over my list of categories for all my transactions - a mish-mash of unwieldy Quicken defaults and over-specific niches I cooked up in 1999. He suggested I print out that list and pare it down. Then when I hire an accountant to look over my books with me, she can tell me whether certain categories are tax-deductible or tax-irrelevant. Ken suggested one specific here, that I separate out my telephone charges by office, home and mobile.
It was a great experience, if only for helping me get some perspective on a giant unwieldy personal financial data file. He was a patient teacher, ready to show me higher level financial record-keeping concepts tailored for my freelance lifestyle. He had perused my data and he had good suggestions on how I could better use the software. He also had tricks from years of using Quicken. It sounds like most of his business comes from maintaining people's Quicken and QuickBooks files for them. I was glad that he helped me feel more self-sufficient as my own financial manager. He charged $80 for an hour of consultation.
I have at least a half-dozen solid hours of Quicken customizing ahead. I don't mind geeking around with this software - it's reasonably intelligently designed and the information contained within is relevant to me. Once I get my routine down and my record-keeping better established, I believe I should update and revisit my financials every week or every two weeks. Jonathan is in the habit of making Sunday his billpaying/Quicken day.
Once I've got a month of better Quicken use under my belt, and I've combed over 2003's transactions, I'll consult with a CPA. My short term goal is to begin paying quarterly income taxes! And from there I want to reduce my five-figure credit card debt. So much of Quicken is designed to urge you to invest and track your investments. For now, my investment is me, and I need some investment tracking.