Measuring Spending Habits
Why Measure Your Spending Habits?
Your spending is one of the major components of your financial life. While some people would argue that earning money is of a higher level of importance, how you spend is a major part of your financial life. For a lot of people, there are reasons that they spend money that are not immediately evident or even healthy. If this is how you have been spending money, you might want to figure out how to get some more control and start a more sane financial existence. Keep in mind that this is a process that can involve some soul searching and that will definitely involve a lot of emotions.
Money is a very emotional thing. For a lot of people, spending money comes down not as much to needs or even wants as to the attempt to gratify feelings. When you feel a certain way and you want to change it, spending money can often provide an almost druglike benefit.
Of course, this can carry a lot of additional baggage above and beyond the emptiness that goes along with compulsive spending. When you spend your money on things that you do not actually want, you tend to acquire a lot of debt and have no savings to speak of.
Saving money is the only way to get ahead in this world. As well regarded as you might be within your community and as great a family as you may have, your savings are what will keep you going when you eventually stop working. In the meantime, your savings are your main line of defense against falling into a bad situation and having it get worse. If you can't pay your expenses because of being sick or injured and not being able to work or if an unexpected bill torpedoes your finances because you were at the razor's edge, you need to find something to trim off to make life a bit more sane.
In more cases than most people realize, they do not even get very much out of what they spend their money on. For far too many people, spending is either a habit or a compulsion. Every day they buy lunch out even if it does not help them network or even make them happy. Or they go on an expensive vacation every year even though they would be fine to hang out at home. The problem with spending compulsively is that if your money is not making you happy or helping you to do something that you functionally need, it is not serving you. In that kind of situation, you are essentially the slave of your money. Do you want to work day in and day out to be ruled by something that is supposed to be under your control? If the answer is no, you need to be in control of where your money is going, and knowing where it is headed is the first step to taking that kind of control.
Your money is your future and your present.
If you do not track at least the most basic aspects of where your money is going, you are going to drive your savings into nothingness and your debts are going to skyrocket. On top of that, when you look back on what you spent money on, untracked expenses are probably going to feel hollow and ridiculous with the clear vision of hindsight. If you don't want to feel foolish years from now on a lot of levels, you need to have at least a basic understanding of where you are actually spending the bulk of your money.
Tools to Organize Information
One of the most powerful tools in your toolbox for showing where and how you spend your money is your credit card statement. If you are like a lot of people, your credit card is your primary means of spending money. While check registers were the way people spent large sums in days past, today your credit card statement is the surest and most accurate way to gauge how much you are spending and where that money is actually going in your life. Checking your statement on a regular basis is a wise idea that can tell you a lot.
Some systems allow you to organize your expenses, but you can do this with a basic spreadsheet or a paper and pen. If you know what you pay for your utilities, which often do not allow you to use your credit card in their payment, you can compare what you are spending on such required expenses to what you are spending with your credit card.
Since credit cards are usually used to pay for items you want instead of services you need, you can track what you want to spend money on versus what you are spending out of a sense of compulsion or to fill an emotional gap.
There are tools you can use beyond your credit card statement. Your bank statement and brokerage statement are also great tools for helping you get a solid picture of where you really are financially. While it can be depressing to think of wasting money, particularly when it is on things you don't even really care about, it is better to know that something is wrong than to simply pretend that everything is all right until it is too late to change your direction. Wouldn't you rather know something is wrong when you still have decades to make changes that will help you save and invest versus if you were planning to retire next year?
You can take your credit card, bank statements, and brokerage financial statements as the three-legged stool of your monthly expenditures. If you are saving and investing less than you are spending on something you do not care much about, you can cut out the "fat" and begin advancing your goals that much faster. While it can be scary and feel hopeless at first, you have to push through this feeling and begin to save in earnest. Once you do this, you will notice that you feel better as your financial cushion grows.