Why Categorizing Upfront is More Effective

How to Finally get your Personal Finances Together

I recently came to a realization: categorizing things is a lot easier when you do it upfront rather than in bulk.

What do I mean by "things"? Well, I'm mostly talking about articles. Blog posts. Web sites. Things I want to read later.

See, I've been a long-time user of Pocket. Basically, it's a service that lets you save articles for later reading. It also allows you to create categories to tag each article with. So, like the obsessive organizer that I am, I set up a bunch of categories to make sure every article had its place.

But... I would just never use them.

I would save article after article to Pocket, always intending to read and tag them for archival purposes, but it would never stick. My list of uncategorized articles would slowly grow until I was just fed up with how many there were and try to categorize them in bulk.

It never worked. The sheer number of things that had to be categorized was just too daunting.

In the end, this 'knowledge base' I had built up was only useful because of Pocket's search functionality.

But one day, I decided to try something different: I wanted to use Slack as my knowledge base.

Yes, that's right, good old Slack that everyone loves using for communication at work. I wanted a whole Slack workspace just for myself.

Why Slack? Well, I had personally used it myself at a former job (go figure) and I'd actually come to love the overall interface and ease of use. Being able to just create a bunch of channels and dump stuff in them was so refreshing. Not to mention the timestamps; having a complete history of when everything was added was quite useful for placing things within their original context.

So that's what I did: whenever I came across a new article that I wanted to keep, I'd send it off to Slack and make sure it was in a relevant channel for its topic.

For example, some of my most used channels are "#technologies", "#design-inspiration", and "#food-ideas". Being forced to pick a channel to send the article to upfront was so much more effective than trying to go in and organize a pile of articles when I felt bored.

Being able to add some of my own thoughts as extra messages was also a huge plus for Slack over Pocket.

But what does this have to do with personal finances? Well, I wouldn't be writing this article if I didn't have an ulterior motive, so now it's time to talk about how I like managing my transactions.

On Categorizing Transactions

When it comes to personal finances, one of the fundamental ideals that I follow is that managing your finances in a more hands-on manner is more effective than an automated, hands-off approach.

What do I mean by this? Mainly, it comes down to how one manages their transactions.

For me, I've found that entering all of my transactions manually into a single system is more effective than letting some system automatically scrape and categorize them from my bank accounts.

In the past, I've used pencil and paper, then a basic Excel spreadsheet, before finally moving onto GnuCash. All of these things require me to not only account for every financial transaction that I make manually but also categorize them up-front. Especially in GnuCash, where everything is double-entry accounting, a transaction can't exist unless it has been categorized.

Contrast this to something like Mint, where all you have to do is give it your bank credentials. Then it'll gladly siphon up your bank transactions and try (heavy emphasis on try) to automatically categorize them.

Once you've given them your bank credentials, you don't actually have to do anything anymore. You could, theoretically, just check in once a year, see if you're money situation looks alright (or not, if things aren't categorized correctly), and then log out again.

Does this work for some people? Even a lot of people? It must — Mint has so many millions of users. But is this method truly effective? I would argue not; at least, not as much as if you had to manually manage everything yourself.

As just one common example, I'm sure you've heard the tales of people signing up for subscription services, using the service a handful of times, and then completely forgetting about the service and never using it again. Then, they forget to cancel the service but never notice that they're still being billed for it.

How can these people not notice money slowly being siphoned from them? Easy, they never check their credit statements and they rarely (if ever) log in to Mint. They'll just keep being billed till they do that once-a-year financial checkup (maybe sometime around that good old New Year's resolution) and realize how much money they've thrown away.

Not the greatest use of one's money.

If, however, these totally hypothetical people had to instead manually enter these subscription transactions (and categorize them as such), then they'd probably move their butt a bit faster to cancel it once they noticed that they weren't getting any value out of the service.

Takeaways

So what you should you take away from all this? Well, I think it really comes down to whether or not you want to be in control of your finances. If you don't, then great! Go for the passive strategy and just ride along on life.

But if you have financial goals, especially if you're striving for financial independence, then I strongly suggest taking a more hands-on approach to your finances and get into the habit of categorizing your transactions upfront.

Do it Better

Like I said previously, I've jumped between a handful of apps and systems to do this. Nowadays, however, I use this great app called uFincs!

Did I also happen to build this app? Why of course! (remember that bit about ulterior motives?)

So if you're looking for a clean and fast way to (manually!) track your finances, why not check out uFincs? If you want the power of a double-entry accounting system but the ease of use of a modern web app, then uFincs is probably the solution you've been looking for but never heard of (because we only just launched).

To learn more about how uFincs is definitely right for you, head on over to ufincs.com. We've got a great lifetime plan going on right now, perfect for those of you who want one less monthly transaction to keep track of!