| "The money in my savings account always seems to hover around $8,000, and never goes beyond that. I've worked for 4 years now; surely I would have saved more than $8,000?" I thought to myself. That was in 2002.
In 2003, I met my knight in shining armor—my boyfriend then (aka my personal financial adviser) — now my husband. He advised that I record my expenses to keep track of how much I spent. My immediate reaction was "I don't see the benefit of doing that!"
But we all know how it is like being in the height of love. I had the desire to "agree" with everything he said. So I recorded my expenses, big and small, from big bills to small ones such as a glass of soya milk from the market.
I had joked (probably in half seriousness) that it was probably his tactic of checking if I'd been reveling in too much girly indulgences! Well, even if it was, I have today appreciated the benefits of tracking my expenses. So, here is in a nutshell of how recording my expenses have helped me.
After a few months of recording, though with some inertia at times, I started to visualize where my money went.
The first thing I noticed was how apparently insignificant amounts add up. I would indulge in fancy drinks from cafés about four times a week and my soft spot for fancy breads from confectionaries cost me a substantial amount a month.
Then, there was that unnoticed magazine subscription plan. It was chipping away my money inconspicuously, as I was happily shelving the magazines away especially when I got busy (which was almost always the case). Monthly deductible subscriptions and GIRO payment can be silent killers, as money is deducted every month without my consciousness.
I pay my mobile phone bill through GIRO. I recall being shocked at how costly my mobile phone bill was. This bill would not have stood up so starkly, if not for the fact that I recorded my expenses, and was reminded of it every month. Consequently, I reviewed my phone bill and had realized that I was on a premium phone plan that I did not even need! I confessed that I had signed up for that plan for the frivolous reason of wanting the (FREE, or so I thought) sexy mobile phone that was attached to that plan.
I generally lack discipline to wake up early in the morning. I would take the taxi to work, almost every day. Remember how small amounts add up? The total amount I spent on taxi every month was really painful to look at.
I had come to realize why the money I saved then never grow beyond a certain amount. While I knew how much money was deposited into my bank account on pay day each month, I never knew how much money I spent. Every month, I would just draw money from my account at my whim and fancy. Therefore, I could well be spending beyond the amount I took home on some months without realising. It is no wonder my savings never grew, because I was obviously spending more than I earned.
Computing the total amount I spent every month helped me see my spending pattern and how much I spent on an average month. My average expenses were $1000 to $1500 per month. Knowing the amount I spent allowed me to set aside a reasonable amount every month dedicated to...spending. I had then opened another bank account, coined as "my spending account" and would transfer $1200 to this account every month. Drawing down the amount in my spending account reminded me to spend only within that limit.
The remaining amount from my pay cheque remains in my savings account, as, real savings! From that point on, I finally saw the first visible result—my savings account was no longer stagnating—it was growing.
I had then set aside a sum of money for emergency purposes. Subsequently, the extra cash I had every month remains in my savings account for investment or what I would term "for growth." My epiphany on how tracking my expenses can help in money management is illustrated schematically as follows.
Track your expenses --> spending pattern is known
Set a monthly spending limit --> spend rationally and smartly --> set aside an amount for emergency
Once spending limit is established and cash for emergency is set aside --> have extra cash for investment
Like many people, money management eluded me for a long time. We all want to do something about it, but simply do not know where and how to start. Today, I am glad to learn that it is not as elusive as it seems. I would say that the first step is to know your cash flow. How? By starting with the first basic step of recording your expenses! Remember, even an expert financial adviser cannot help you if you do not know how much you spend.
As how my husband had brainwashed me to record my expenses in 2003—on goodwill of course—encourage your significant other to do the same thing. Sharing the same financial value—as I've learned—would help avoid conflict in the future and is a major step towards a harmonious relationship.
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