If you want to become the master of your financial fate then you must build the habit of measuring your money.
What needs to be measured?
How much do you make a month? As in take home cash.
Your earnings information tells you how much you should save and spend.
You need to measure exactly where you are spending your money. Be it eating out or paying rent, list your expenses. Analyzing your expenses will tell you where your money goes.
How should you measure?
#1. Get Tracking – A spreadsheet software helps a lot here, but a simple diary or notebook will also do. Create an earnings page where you list down all your income sources. The other page will be your expenses page.
#2. Your expense page – Create an expense page that can be daily or week wise, where you list the following:
- Where, When, and How much you spent?
- Was it a need based spend or a want based spend?
It is important that you list your expenses within a couple of days of making them.
#3. Check 1 – Are your expenses exceeding your earnings?
Subtract every expense (including your credit card dues) from your earnings. If the result is negative, that is a red flag.
If you are in the habit of maxing out your credit card limit every month and struggle with payments, you are probably spending more than you earn.
#4. Check 2 – Are your expenses skewed towards wants rather than needs?
If the answer to the question, “Was it necessary” for most of your expenses was a “No”, then you have a problem. It’s critical for you to focus on needs rather than on wants in order to achieve financial freedom faster.