George Santayana has been quoted as saying, “Those who cannot learn from history are doomed to repeat it.” There is quite a bit of value to be gained in the ability to look back at your spending and learn from trends, isolate mistakes, and highlight quality decisions.

Looking Backward
The current trend in money management software is to do just that — all under the banner of automation. Software solutions are appearing at a rapid rate that have you up and running in just a few minutes, syncing with your bank account information, downloading transactions as fast as they appear, and categorizing them for beautiful reports. Visually stunning and technologically appealing, the first pass usually gives you the feeling that, “[fill in blank] will definitely help me manage my money.”

And they will.

If you are looking to make marginal gains in your money management, these should fit the bill nicely. If you’re looking to make huge strides, there’s a better way.

Moving Forward
Economically speaking, there is no such thing as a free lunch. And that principle applies here as well. You’ll get out only what you put in.

What you’ll find in money management is that looking backward will only get you so far, while looking and moving forward will you bring your finances to a whole new level.

Consider these two separate scenarios:

Scenario 1: I spend a total $100 at various places for various things. A few days later I login to my traditional money management software and see those transactions categorized automatically for me. I note that I spent some here, and some there, and muse about my spending over someplace else as well…

Scenario 2: I have $100 in my pocket. Before I do anything with the money, I think for a few minutes about what the money needs to do for me. Pay bills? Buy food? Be saved for a rainy day? Based on this thought exercise I write down my plan for this $100.

Given those two different scenarios, which offers you the higher likelihood of bringing your spending inline with what your true needs, wants, and values are?

Benjamin Franklin said, “A penny saved is a penny earned.” I suppose what I’m here to tell you is that a penny budgeted is a penny well-spent. I’m confident in saying that budgeting brings about better spending because a person being honest with him or herself will not knowingly create a plan that is contrary to what is truly wanted. When you sit down with your paycheck, your spending categories, and your value system, your budget is going to be a reflection of you and your priorities. I suppose that’s one thing that’s automatic about this system.

The money management system I’m proposing is one of looking forward, projecting, and planning. Instead of looking back at what you’ve done, you decide beforehand what you would like to do, and then you execute based on that plan. You do this monthly and you do it manually. When you attempt to do this with less frequency and more automation, the level of benefit drops significantly. Why not have both? Look back at your spending and learn, then take that learning and plan.