There are some habits you must build to become the master of your financial fate. Growing your earnings depends on factors that you sometimes can’t really control. Reducing your expenses is, however, largely in your control.
The process of money management and wealth creation is mainly about what you can control. The one thing you need to do to master your money is to build the habit of measuring.
What needs to be measured?
Is your salary your only income? Do you have secondary or tertiary sources of income? Your earnings should list every known source of income.
Your earnings information tells you how much you should save and how much you can actually spend.
You need to measure exactly where you are spending your money. Beit eating out or paying rent, list your expenses. Analysing your expenses willtell you where your money goes, how much of it goes, when it goes, and why itgoes.
How should you measure? – An action plan
#1. Get Tracking – Having anexcel spreadsheet for this helps a lot, but a simple diary or notebook willalso 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 is the first step to building a good habit – Create an expense page that can be daily or week wise, where you list the following:
- Where you spent your money?
- When did you spend your money?
- How much did you spend?
- What did you spend it on?
- 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 so that you don’t forget. The more detailed you can get here, the more light you will shed on your financial behaviour. This will include your regular bills and credit card payments.
#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.
Tools such as your credit card make it easy to overspend by allowing you to defer payments and speed up purchases. 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. Expenses like eating out too often and splurging on gadgets you don’t really need, lower your wealth in the long run.
It’s critical for you to focus on needs rather than on wants in order to achieve financial freedom faster.
#5. You can use tools too
Your smartphone can help you track your expenses thanks to money tracking apps. Use these to make your money tracking experience smarter. There are apps that can read your SMS and automatically track your expenses for you.