Keeping Track of Your Spending - Why it's so Important
An Acceler8now.com Investing Education Resource August, 2007
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Managing personal finance is a major plank for achieving a healthy quality of life, yet not many people want to take it that much seriously. Often, we pay for such indiscretion with a lot of avoidable financial stress and crises. Two critical dimensions of your financial equation are the income and the expenditure. If you have problems with any of those, you are likely to end up with financial problems. While boosting your income inflow is so important, keeping a tab on and controlling spending complements the effort. With success in both facets, a healthy financial position becomes very possible for you.
Spending As a Weak Point
There are many people who generate sufficient income to be able to drive their finances into a stable position but who can't because they have a major weakness with spending. The income profile is reasonable, but the expenditure profile is out of tune, leaving them financially disoriented. The reason is simple: the natural impulse to spend has not been brought under disciplined control or better still, replaced with a stronger impulse to save. Unfortunately, unbridled spending is ruinous, especially when you realise that much of what gulps the spending is ephemeral, non-durable and easily forgotten. Momentary pleasure, maybe, but nothing tangible you can hold on to, after a short while. Unfortunately, reversing such spending habit is not so easy, meaning that getting spending under control is a difficult process.
Tracking Aids Control
Controlling expenditure is only possible if you can keep track of it. As often said, what cannot be measured, cannot be controlled. If you are to budget your spending, for instance, you need to estimate and provide for your reasonable spending on various expenditure categories. That provision cannot be meaningfully made if there is no reliable information on what a particular expenditure category is costing you. Neither can you determine if your current spending is excessive, if you cannot quantify what currently goes there. If you are to feel a jolt of shock at your unreasonable spending habit, that will only be when you have put figures together to see, in bold relief, how much you are pouring down the drain. If you succeed in budgeting your spending so as to stay within reasonable limits, you can't know if you are overshooting unless you are able to track what you spend. Since expenditure control is so important to your personal finance management, tracking your spending becomes something not to gloss over.
Hard Road to Travel
The challenge is in how to achieve this goal. Not many people have the patience or time to keep recording and itemising money they spend. There may be another question as to whether it isn't more productive to spend the time and effort seeking ways to generate more income. Well, the simple answer to that question is that even if you succeed in continuing to grow income (that too has its challenges, though), without plugging the spending pipe, all could easily drain away, leaving you where you started. If tracking your spending will help you control it and make meaning out of your income, then by all means, give it some attention.
Tracking Options
There are two tracking options you may consider:
- Tracking in Details
This implies having in place a continuing process of recording all your spending, month in, month out. This may prove a bit tasking, meaning that if you are determined to achieve it, you need to device a process. What you must know is that getting this done has its reward in helping you understand your spending habit and this empowers you to manage it. Can you document all your spending? If it's a habit, you can. All you need is a handy, portable notebook, payment by cheque as much as possible, and the discipline to update your records frequently. A manual register, an excel worksheet or an appropriate software are some of the tool options for keeping the records. What must be noted is that recording expenditure will only be valuable if it helps you evaluate your spending profile and take decisions on the impact on your overall financial performance. This logically leads on to implementing controls where necessary. What that means is that you must sit down at intervals to examine and analyse the figures you have generated. You should also be in a position to apply the information at your disposal in planning and budgeting your future spending profile.
- Tracking Bulk Items
Tracking may also be implemented on a stratified basis: bulk spending (you set the limits) gets recorded individually, while the rest of your spending is captured into miscellaneous category. Here you lose some details which may, unfortunately hide some useful information, knowing that what passes as minor amounts can accumulate to a sizeable bulk. But it is better than not recording your spending and may be easier to consistently implement. Here again, paying for such bulk sums through your bank account will help the record-keeping process.
 Design What Works for You
This is all for you and your own good, so decide what works for you. Simply note that if you just keep spending money without asking where it is going, you will be missing an important opportunity, not only to enforce some sanity but, more critically, to channel more of your financial resources into building your financial capacity. Nothing good comes easy and this applies to effective financial management, the bedrock of financial success. But don't you desire financial success? If you do, you will be prepared to strive to understand and implement the basic principles that can help you achieve success on an almost guaranteed note. What medium you use in recording your spending will be up to you, but a software for this purpose, if you can afford one, will be the ideal way to go. More importantly, make use of the information you capture by analysing it and doing everything possible to plug areas of excessive spending.
Copyright © 2007. Acceler8now.com. All rights reserved.
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