I never used to until our financial planner told us we have to.
It was not an easy exercise. There is that little notebook that you need to haul with you everywhere. And you have to be on your guard everytime – I know I still have a dollar here, where did it go? And there’s the hubby that you have to nag to please write every little expense when you know he will not because he does not want to.
He still does not want to.
And then of course you get caught up in your days and you forget to write down the numbers thinking there is still tomorrow, then tomorrow would roll to weeks and the weeks to months before you realize you are in serious trouble because it is already impossible to figure out where that money went (and why it is all gone).
But, really. What does it achieve? (or hope to achieve)
At first, I was not sure. Then I did it for a month and then I saw.
But what I saw opened my eyes and gave me heart palpitations.
We were spending more than what we were earning.
What was it I said in my MoneySmarts guest post?
It started simple enough. Joe wanted us to list all of our expenses every day forever. He did not warn us that our hearts could suffer anxiety attacks because, for one, we were confronted by the fact that our expenses overshot our income by some USD$600 every month. He also provided no explanation as to how we could have survived all this time – but our zero-balance savings, credit card debts, frequent lifeline calls to mom and dad could possibly provide a clue. It is a stressful exercise trying to figure out where our money went every day because with it comes the understanding that it went to excesses of the flesh and vanities. Want and need are becoming very delineated concepts at this time (but concepts all the same).
Joe had us make a list of our monthly expenses. He then took out his scissors and cut away the expenses, which exceeded our monthly income. This included my gym membership (to which I signed up for one year minimum!), auto repairs (we have 7 and 14 year old cars!), clothing, movie trips, restaurant trips (the stuff life is made of) and altruistic pursuits (read: gifts). Joe said that if we wanted them, then we would have to reduce our spending for the items above the scissor line. It would mean no aircon nights, commuting, and probably the househelp has to go.
Despite the pain, one important thing I learned from this exercise is that I should pay myself first. That is, from the collective salary my husband and I receive every month, we should take 10 percent of it (the Japanese do 60 percent!) and put it away. The key word is away – it should be where it is not in any danger of being spent. It could be in a simple savings account, a high yielding deposit account or a time deposit account. At the end of the year, Joe said we should have a definite plan on what to do with this money. Joe does not believe that we should be misers. Money, after all, is there to improve life. (I breathe a sigh of relief here.)
Joe divided our expenses between my husband and myself and assigned us specific bills to pay. I found this extremely hard at the beginning because my husband usually surrenders (yes, it is the right word) all of his salary to me and I pay everything. Doing it Joe’s way made me feel like I was losing control. Moreover (stress ball in hand), I have to remind my husband every time to pay his share of the bills, and he hates to be reminded (but needs to be reminded). We are still works in progress on this one.
But today, there’s no need for a notebook. I rely on Splash Money, which I paid for (USD$39, I think) and downloaded to my cellphone. It allows me to list all of my expenses and gives me a pie chart, a visual, if you will, of expenses vis a vis other expenses (reaaaally, did we eat out that much last month?).
Other times when I forget to “register” my expenses, I put all the monthly receipts in an envelope and painstakingly list that down when I have the time (I try to find the time).
But you know what – this exercise increased our self-awareness. It made us realize our spending patterns (like how much we spend for groceries and if that is too much or too little or if we are eating out too much in a month), and helped us make decisions (like would we save more if we hired a driver versus taking our daughter to and from school, how much is our time worth). The money that is “lost” on “wants” (versus “needs”) made us realize the error of our ways (uh-oh, that money could have gone on a stock market investment) and made us “see” and “take” the second and third chances that come our way.
Control. It helped us establish some modicum of control.
There are quite a number of free expense trackers out there. This post by SmashingApps.com outlines a few.
The coming new year is a great time to get your financial house in order. With the blasts and the gasps and the wonderful swirls of lighted beams, may we all see the light.
A prosperous New Year to all.
Article by Issa. Art by D. Copyright 2009.
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