Key to Financial Success is Understanding and Managing Your Spending
Sometimes the simple things can make the biggest impact on our lives. One of the most important steps toward achieving financial success is to fully understand where you spend money. Increasing your awareness of how much you have available to spend and where you spend this money helps you become more intentional in your spending.
Studies have found that many of our actions are based on habit rather than conscientious decisions. This is true with the food we eat, our daily routines and our spending habits. By tracking your expenses you may discover spending patterns that are preventing you from achieving your financial goals.
This may seem obvious, but if it’s been a while since you took a serious look at your spending habits, it may be time to track and evaluate your spending. You don’t need an expensive software package, just a pen, paper, and a calculator. Review your credit card statements and bank statements over the last 6 months and track your monthly expenses. If you spend a lot with cash you may need to keep a journal, for a month, to monitor where you are spending your cash. Don’t leave out the quarterly and annual expenses in your review. Compare your expenses to your net income to determine how much is left at the end of each month.
This exercise should be enlightening and you will probably be surprised at the amount you spend in certain areas. Think about your financial goals and evaluate how you are actually spending money in the context of your goals. Are you maintaining an emergency fund and saving money to meet long term goals such as retirement, a new home, a new car or college education for your children? Create a spending plan that supports your financial goals.
You may find it helpful to systematically set aside or invest money to build an emergency fund, invest for retirement or save for college tuition. If this money is put aside, it may be easier to become accustomed to living on the remaining funds.
Regardless of your income level, the secret is truly understanding how much you can spend and being intentional about how and why you spend your money. Budgeting is about setting financial goals and priorities, not keeping you from doing what you love. If it’s a priority to spend a lot of money on eating out, taking a vacation or buying a new car and it fits within your financial plan, then enjoy yourself. Alternatively, if you are spending too much in one area consider enjoyable alternatives. For example, meet friends for happy hour rather than dinner at an expensive restaurant.
Being aware of your spending helps you spend more intentionally and weigh the trade-offs of every purchase. The simple act of reviewing your past spending habits will make you stop and think before making spending decisions in the future.