23 July 2007

Fixing your Money Problems - 3

Part 3: (Tracking your expenses)

No matter what your salary is, you need to know approximately how much money you spend per month, and where you spend it. Ask a lot of people where their salary went at the end of the month, and you would get replies like: "I don't know! I didn't even buy anything this month!" and so on. Obviously, your mind doesn't remember every single thing you spent money on during a whole month, especially the smaller purchases (cup of coffee here, quick snack there, etc), but the small things together can wipe out your salary. Again, "Money adds up"; a small purchase here, a small purchase there, and soon you realize you've spent a lot more than you thought.

Now, if I asked you right now exactly what you spent your money on this month, would you know how to answer with a good degree or reliability?

Most probably not. You could probably try to calculate; this much on gas every day or week, means so and so per month. That much on a meal per day in thirty days is... etc...

Your mind can't easily process your exact spending over a period of thirty days. You probably know what you spent today, or yesterday, and maybe even the day before that, but the longer you go back, the more you start to lose track of your spending. Point in case here; this is what humans created paper and pen for.

Here's an excercise you can do for the month; keep a small notebook with you, or a little daily diary. Write down everything you spend your money on during the month (make sure you note down every single purchase, whether a new laptop, a cup of coffee from Starbucks, or a pack of gum). If you don't want to carry the notebook around with you, just save your purchases in a draft SMS on your cellphone, or keep reciepts from everything you buy, and copy them into your notebook at the end of the day.

You might think its a little excessive writing down every last purchase, but keep doing it. At the end of the month, you'll have an exact list of where every single dinar went. To make sure you did it right, add up all your expenses, and any cash you have left. That should equal your total salary.

Divide all your purchases into categories and add up the amounts; for example, snacks can be one category, clothes can be another, gas, food, and so on. Then you'll get an idea where you're overspending, and where you can try to make a change to your spending habits.

Writing down what you spend isn't something you need to keep doing for ever; just one month is enough to give you a good idea of how you spend your money, and the chance to change some things. You might find out that you spend too much on Starbucks; perhaps its time to start cutting down on those trips to the coffee shop, and start making your own at the office. Maybe you spend a lot on clothes; again, are you buying too many clothes, or are you always buying really expensive clothes? The situation is different for each person, but this allows you to figure out what you need to do.

Most people find out their biggest expense is usually food; spending too much on eating out, so perhaps its time to start eating more at home, or stop going to those top joint restaurants? Either way, figure out what it is you spend so much on, and come up with an alternative plan.

Another use of this list; you can figure out what expenses are for things you NEED, and what are for random things you WANT. Eg. the gas you fill up your car with to drive to work every day is something you need, while that new red pair of shoes to complement your red dress and bag is, in fact, not (I know many women will disagree, but its not! Get over it!)

You don't necessarily need to cut down drastically on everything, and put your spending on an extreme diet; just enough to be able to spare some money to save up. A lot of people, especially in our region, spend more than their budget can afford; I know someone with a 400 dinar salary, who has a car loan for around 160BD, rents an apartment for 120BD, and still wants to go out to classy restaurants every night - well, that just doesn't make sense. He goes out for the first week or so of the month, and spends the next three weeks at home, broke.

Well, hopefully were trying to get out of being in a similar situation; so keep a look out for your spending habits, and see what you need to fix. we'll talk about that a little more in future posts.


Anonymous said...

I will definitely start writing down my spending this month and see how much I spend and where and keep you posted.

Thank you very much for these posts Ammar!

Silveroo The Sailor said...

I thank you from the bottom of my heart, Ammar! Your post really touched what I seriously need to realize when it comes to my spending habits!

I'll give your suggestions a try starting from tomorrow!

Ammaro said...

I'm glad you find them useful! Right now i've started off with the very basic things; most tips are actually common sense but are usually too simple to think about, although they make a huge difference when you actually do them. I'll keep posting more articles over the next few days; let me know how they work out for you!

Abdulla said...

WoW! great posts Ammar...really looking forward to more posts like those ;)

Anonymous said...

Ammar, from this post i realized that i'm a "shopaholic" and a "chocoholic" =$

all my money goes to these two,, now i realize how it vanishes so fast, all in a sudden

Anonymous said...

OK I didn't need the red shoes but you can't understand :-P

Anonymous said...

Oops again...