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SO YOU WANT FINANCIAL FREEDOM:

TRACK YOUR EXPENSES

Financial success all comes down to creating savings and properly managing that savings. So the first step is is to create the savings to begin with. This can be done in two ways: increasing your income and managing your expenses so you can maintain a gap between the two. When some people try to tackle this problem they focus on increasing income. However, this is not the best place to start. First off increasing income can take months if not years. For example when I first started working I was making around 40k a year. Now I’m at 87k a year but it took 3 years to get here. Moreover when we just focus on increasing income often we still are not able to maintain an effective level of savings because as our income increases our expenses creep up with it so that in terms of savings we were no better off than when we start. Sometime we even end up in worse situations because we end up spending more than what we make and dig ourselves further into the hole. Why do you think such a high percentage of professional athletes go broke. The better way to start out is on the managing expenses side. It’s here where you can make a dramatic difference in weeks as opposed to years and where you build sustainable spending habits that will help you keep more of what you earn as you make more money.

Step 1: Track It

The first step in managing your expenses is knowing how much you spend. Now this isn’t putting some insanely low number on a piece of paper and trying to hit that because that;s not going to be sustainable. You’re going to go through your week and by the end of it be very fed up with the fact that you feel broke. You’ll then go back to your previous spending habits of ignorance is bliss and spend whatever you want—which doesn’t get you any closer to your goal of financial independence.

What you want to do instead is to go through your normal routine for three weeks spending what you typically would and track it as you go. You can carry a notebook with you and write it down there or jot it down on your phone. It doesn’t matter where you track it as long as you’re consistent and can find your notes after three weeks.

Step 2: Make It Easy

When you write down your expenses you only need to track two things amount of the expenses and the date on which they occurred. You don’t need to keep track of what store you bought the item at, what the item what, whether you paid cash or credit. That’s not important at this stage. When you’re first starting out the hardest thing is going to be adapting the new habit of tracking and remembering to do it once you’ve purchased an item. Thus, you want to make the process as easy as possible and just track the bare minimum: how much you spent and what day your spent.

Step 3: Grab A Friend

Ok so you’ve committed to tracking your expenses. You’re keeping it simple. It’s still going to going to be difficult to get started. Because when you’re on your way into the office grabbing your morning coffee your mind is focused on mapping your your day and mentally prepping for your first appointment. You’re not remembering to write down that you just spent $3.57 because you haven’t made it a habit yet. The best way to change that and make it a habit is to get some help. Ask a best friend, spouse or close family member to hold you accountable. Have them to commit for the next three weeks to ask you everyday if you wrote down your expenses. For each day that you don’t you owe them $10.

Step 4: Create Your Weekly Budget

After the three weeks are over you will now have a good idea of what your normal spending habits are. You now know what you would prefer to spend in a given week. The final step is to see if that amount works with your larger budget. To do this take the highest amount you spent in a week and see if it fits in your budget. So for example, if you spent $97 in the first week, $93 in the second, and $100 in the third, you’re going to use the $100 as your high water mark and see if your budget can fit $100/week. If you can then make sure that each week going forward that you don’t spend over $100. If you only have $80/week that you can fit into the budget then go back through your typical spending and think about what you’re willing to give up to make sure that you can meet that $80/week target.

And now you’ve take the first step to better your financial future! You’re next step is to keep up the habit and to share this with 3 friends you know need help tracking their expenses.

Pro Tips

  • Pro Tip1:
    Forget the change and always round up your purchase. So when you spend $3.57 for coffee round that up to $4 and write that down. Why? Because round numbers are easier to remember so if you can’t write that purchase down immediately because you’re on the run it’s a lot easier to remember $4 than $3.57. Moreover, this system isn’t perfect because you’re not perfect. You’re going to forget to write down an expense every now and then. So when you start budgeting and you budget $100 for your weekly budget when in reality you usually spend $94.75 you’re at worse case giving yourself a $5.25 buffer to account for any small expenses you may have forgotten. At best case scenario when you didn’t forget to track any expenses you have another $5.25 that you can now allocate to savings. A win win either way. 
  • Pro Tip 2:
    Try to put everything on your debit card. Why? Because it gives you a record of your expenses that you can use to check against your manual tracking in case you ever forget to jot down an expenses. Now some people like Dave Ramsey prefer to use cash instead of their debit card because it’s easier for them to make sure they don’t overspend. However, there are some easier ways to keep this from happening that I’ll share in my next article.

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Don’t Let your finances hold you back. Master  your money and make your dreams real.

#FinanceYourDreams

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