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Watching Every Cent

Watching Every Cent

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    If you’ve been working on getting your personal budget balanced, going offline can make some sense. There are plenty of web applications and other tools that really do well at interpreting your spending patterns and other information just by taking a look at your monthly bank statement. But there’s really no substitute for doing some financial tracking on your own.

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    Every Little Cent

    One reason many people seem to struggle with building a budget that actually works for them is a lack of understanding when it comes to telling where their money really is going. Between cash, debit cards, credit cards, automated payments, one-click purchases and all the other myriad ways we can pass our money along to someone else, is it really any surprise that creating a spending plan that works longer than a week is a difficult proposition?

    Building a budget that is truly effective requires a very thorough understanding of your own spending. There is a relatively simple approach to getting the necessary grasp on your typical spending — tracking every cent you spend.

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    It isn’t a long term approach, of course, but if you’re working on getting your finances under control, a good first step is to spend a week or a month simply observing where you’re actually spending your money. It’s a matter of making a note every time you pull out your wallet, whether you’re spending cash or using plastic. At the end of your observation period, you’ll have a list of transactions that will give you a much clearer view of your expenses than a bank statement can. At a bare minimum, you’ll have an idea of where the cash you pull out of the ATM goes.

    Keep It Simple

    For most people, tracking spending for a full month will give you the best picture of finances: how you spend right after your paycheck comes in can be quite different from how you spend during other parts of the month, for instance. However, it is difficult to keep up with tracking your spending for that long. There are a few ways to make the process easier:

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    • Keep a notebook with your wallet, so that you have to pull it out whenever you’re making a purchase.
    • Write down every transaction, even if you get a receipt. It helps turn the process into a habit — and you’ll have one document with all your information.
    • Go with the paper route. Messing with texting your expense to yourself or shooting off an email just adds more hassle than a simple note.

    The important part of keeping this sort of ‘every cent counts’ record is to get the best data possible to work with. While some people can build a budget that they can stick to without such specific records, the fact of the matter is that most of us struggle to stick to a budget if we have spend without accountability. For those of us who fall into that category, budgeting becomes much easier when we already know how much we spend in a given category over the month. We know where we should cut back — and where we can cut back.

    Processing Data

    At the end of the observational period, you’re likely to have at least a few pages worth of records that you’ll need to interpret into a usable format. You may be able to spot patterns without doing anything in the way of processing, but it’s probably worth investing some time in the project and creating a spreadsheet with each of your expenses. Categorizing your expenses can make spotting patterns much easier — like picking up a candy bar every afternoon for a snack. These sorts of patterns are the starting point for changing your finances for the better. There are both good and bad spending patterns, and being able to see them can make a major difference in your ability to budget.

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    Once you’ve gone through all the data you’ve collected, it’s time to compare it to what you’d like your budget to actually be. There may be a large discrepancy between your plan and reality — the typical reason that so many budgets fail — so make note of where those big differences are. Breaking just one or two patterns may make all the difference in bringing your actual spending in to line with a budget: if something like a daily candy bar is driving up your budget, taking a step to eliminate the need for that candy bar (like bringing a snack to work along with your lunch) can make a dramatic difference. It’s worth noting that breaking a habit is often difficult — replacing it is usually easier. That fact applies to spending as much as any other habit.

    After an observational period, it almost always makes sense to end your financial tracking. It’s useful to get the sort of data you need to form a lasting budget, but it can be a fairly time-consuming process. Furthermore, you probably don’t need a cent-by-cent accounting of your finances beyond the planning stage. You may need to occasionally revisit your daily spending habits to make sure you’re still on track, but otherwise, reviewing your bank statements and receipts will more than suffice. It’s also worth looking into some sort of financial tracking application: while they may not be so useful in understanding the details of your spending, they can provide you with a broad overview that can be enough to guide you if you’re already on track.

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    Last Updated on January 21, 2020

    How to Develop a Millionaire Mindset in 6 Simple Steps

    How to Develop a Millionaire Mindset in 6 Simple Steps

    We all like to dream about being financially wealthy. For most people though, it remains a dream and nothing more. Why is that?

    It’s because most people don’t set their mind to achieving that goal. They might not be happy in their current situation but they’re comfortable – and comfort is one of the biggest enemies of growth.

    How do you go about developing that millionaire mindset? By following these simple steps:

    1. Focus On What You Want – And Take It!

    So many people are too timid to admit they want something and go for it. When there is something that you want to accomplish don’t think “I could never actually do that”, think “I could do that and I WILL do that”.

    Millionaires play to win, not to avoid defeat.

    This doesn’t mean to have to become a selfish jerk. What it means is becoming more assertive and honest with yourself. You don’t have to grab off other people. There is a big pot of unclaimed gold in the middle of the table — why shouldn’t you be the one to claim it? You deserve it!

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    2. Become Goal-Orientated

    It’s almost impossible to achieve anything if you don’t set firm goals. Only lottery winners become millionaires overnight. By setting yourself attainable goals, you will get there eventually. Don’t try to get rich quickly — get rich slowly.

    Let’s take the idea of making your first million dollars and expand on what kind of goals you might set to get there. Let’s also say you’re starting at a break-even position – you’re making enough to get by with a few luxuries, but nothing more.

    Your goal for the first year can be having $10,000 in the bank within a year. It won’t be easy but it is doable. Next, you need to figure out the steps you need to take to achieve that goal.

    Always look at ways to make growth before cutbacks. With that in mind, you might want to see if you can negotiate a pay rise with your boss, or if there’s another job out there that will pay better. You might be comfortable in your old job but remember, comfort stunts growth.

    You may also have other skills outside of your workplace that you can monetize to boost your bank balance. Maybe you can design websites for people, at a fee of course, or make alterations to clothes.

    If this is still not enough to make the money you need to save $10,000 in a year, then it’s time to look at cutbacks. Do you have a bunch of old junk that someone else might love? Sell it! Do you really need to spend $10 on your lunch everyday when you could make your own for a fraction of the cost?

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    If you are to become a millionaire, you need to start accumulating money.

    Here’re some tips to help you: How to Become Goal Oriented and Achieve More in Life

    3. Don’t Spend Your Money – Invest It

    The reason you need to accumulate money is for step three. Millionaires tend to be frugal people, and that’s because they know the true value of money is in investing. Being your own boss goes hand-in-hand with becoming a millionaire. You’ll want to quit your regular job at some point.

    Stop working for your money and make your money work for you.

    Rather than buying yourself a new iPad, that $500 could be used to invest in the stock market. Find the right shares (more on that later), and that money could easily double within a year.

    There’s not just the stock market — there’s also property, and your own education.

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    4. Never Stop Learning

    The best thing you can invest in is yourself.

    Once most people leave the education system, they think their learning days are over. Well theirs might be, but yours shouldn’t be. Successful people continually learn and adapt.

    Billionaire Warren Buffet estimates that he read at least 100 books on investing before he turned twenty. Most people never read another book after they’ve left school. Who would you rather be?

    Learn everything you can about how economics works, how the stocks markets work, how they trend.

    Learn new skills. If you have an interest in it, learn everything you can about it. You’d be surprised at how often, seemingly useless skills, can become extremely useful in the right situation.

    Start developing the habit of learning continuously: How to Create a Habit of Continuous Learning for a Better You

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    5. Think Big

    While I advise to start off with small goals, you absolutely should have a big goal in mind. If you have a business idea, then that is your ultimate goal – to start that business and make a success of it. If you want to invest your way to millions of dollars and do little work other than research, then that is your big goal.

    There is no shame in not achieving a big goal. If you run a business and aim to make $1 million profit in a year and “only” make $200,000, then you’re still significantly ahead of most people.

    Aim for the stars, if you fail you’ll still be over the moon.

    6. Enjoy the Attention

    To be successful, you have to be willing to promote yourself and enjoy the attention to a certain extent. Now the attention doesn’t need to be on yourself, it could be on your brand, but attention definitely attracts money.

    Never be embarrassed to get your name out there. That means finding a spotlight and being brave enough to step right up underneath it.

    If you run a business, try contacting the local papers. You’d be surprised at how amenable they often are to running a story about you and your business, and it’s all free publicity.

    Above all, remember: You control your own destiny. Push hard enough for anything and you’ll get it.

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    Featured photo credit: Austin Distel via unsplash.com

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