This is something that I have been doing since last year (2011) and I can say that it has helped me a lot in terms of saving up and knowing where my hard-earned money goes. The first time I began to track my spending it showed me what I thought was important. And it was such a huge eye-opener.
I now carry around a little organizer/notebook where I record each and every purchase I make. If I pay for an 80php cup of coffee I write it down. If I pay for a 500php t-shirt I write it down. If I can’t open my notebook after buying something, what I do is take note of it on my smartphone by using the Notes app, save the receipts and then I transfer it to my notebook at the end of the day. At first this seemed very tedious but the process becomes automatic after a very short time. This procedure is the number one way I know of to get you very acquainted with your financial habits so you can also begin taking control.
Then at the end of each month, haul out your notebook, bank records, invoices, time sheets or credit card statements (if you have those, I don’t) and make a spreadsheet. A spreadsheet can be as simple as a piece of paper with columns or more high tech, like a money management software program (do a Google search and you’ll find lots of these). Take a look at your expenses and figure out the categories where you most often spend your money. No doubt food will be one category, but don’t make it quite that simple. Divide food into meals, snacks, cappuccinos, lunches out, dinners out, etc. Bags of chips, biscuits, smoothies fall into the snack category. Go through the rest of your expenses and do your best to divide other larger categories as well. Clothing is another example. If you have a job you will likely purchase clothes for work and clothes for leisure – separate them. Add up each category. This will tell you a couple of things. One, it will show you in graphic detail where your money goes each month. No longer will you be able to complain that you do not know what happens to your paycheck. Two, it will give you an idea of your priorities. Maybe you have been taking a lot of cappuccino or latte breaks and are surprised at how much money you have spent in this category over time. These expenses tell you something about who you are.
Next, this chart will show you where you can cut back if you have nothing saved or in debt. Last year, I have realized that I spent a lot on clothes, accessories, coffee, taxi rides that I didn’t really need! That’s why I sat down and started to really take note of all my expenses. But yes, at first it looked as if I was trying to deny myself. After all, what is daily life if you can’t indulge in a little pleasure once in a while? But no I realized that I am really not denying myself because I know that I am making important choices that would lead me to larger life goals. I now prefer to put some money on my insurance than waste it on some clothes. I made a choice.
I read somewhere that the habit of gratifying every immediate need gets many of us into financial trouble. We usually use the excuse, “I work hard so I deserve a reward.” But ponder this: We work hard, so spend money on rewards. We spend money, so we need to keep working hard.
No doubt we should reward ourselves and we should include daily pleasures in our lives, but we need to keep the rewards, pleasures and life goals in perspective. We can do this by creating a financial plan that leads to our life goal. The plan should include money set aside for fun and pleasure and it should also include money for saving and investing. While it is important to keep our life goal in focus, we also need to be mindful that goals, like life, are fluid. Yet that fluidity should not alter our saving pattern. So I have been reminding myself of this everyday: “Continue putting a given or increased amount of money aside on a regular basis no matter how my goal may change so that I will still have a pot of money at the end of whatever my goal may be. Because if I do not begin saving, then I will never have a pot and, thus, will have no choices.”
I am thankful to have a man in my life who is constantly reminding me to SAVE, SAVE, SAVE. He is one of the reasons why I am thinking of life goals and investing. Thanks Nonoy Tim for the insights and the constant reminders!
On my next blog post I am going to explain why I don’t have and will never acquire a credit card so please watch out for it. Thanks for reading my kinda long blog post today and I hope you have learned something and put it into action! Leave me a comment below for your reactions and more suggestions on how we can save and invest.