Almost everyone knows how much money they make per month, but not many people know exactly how much they spend per month.

Knowing how much you spend is important as it determines how much you need to save and how much you can invest.

Why do we need to know how much we spend?

Know your spending pattern, will allow you to know how much you should save for emergencies. After recording my daily expenses for many years, I know how much I spend a month on average. Presuming my monthly expense is $1,200; my emergency fund should at least be 3 times of $1,200, which is $3,600. $3,600 will be my initial goal. I can stop setting aside for emergency once I have more than, e.g. 6 times of $1,200, which is $7,200. Subsequently, anything extra of that can be saved or invested.

By knowing how much you spend, you can also identify areas to save on. Most often we are not conscious of our spending. Even if you try to save, it would be haphazard and unfulfilling. Why? Simply because you cannot see the results of your effort to save. Similarly, how can we resolve a problem if we do not even know where the problem lies? It is thus necessary to know your expenditure pattern first. From there, we could pinpoint on areas of wastage, extravagance which we could save on.

General rule to spending

I was astonished to hear that a lady friend of mine spent close to every single cent of her pay cheque every month. Another friend of mine sees a handbag she likes and has no qualms about borrowing money to quench her emotional buy. Reason for her having to borrow money is because her bank account is close to ground zero!

I am not a sexist, but in this world of consumerism, there is everything to bring the spending devil out in you be it you are a man or a woman, seas of cosmetics, clothes, vanity stuff; high-tech babes, countless chic gadgets, sexy curves of a car, make-believe paradise condominium…there are indeed lots of temptation that can be hard to resist.

But yes, we need not deprive ourselves of some luxuries. The idea is, spend consciously and spend smartly. Besides for basic survival needs, we can spend on things that make us feel good, as long as it is within our monthly spending limit.

So how much should the monthly spending limit be? Simple! Just follow this magic formula:

Spend$ < Make$        just spend less than what you make!

The general consensus is spend not more than 90% of the money you make. But of course if you can beat the norm and spend less and hence save more, you can have more money for growth. Having more for growth means you can create wealth faster.

But how can I control my spending?

Recording your expenses down will be one habit that would make you more conscious about what you spend on. Being aware that the item will appear in your expenses and 'tint' your record will make you more conscious before making any purchases. Recording down your expenses would also be a reminder if you are still within your spending limit for the month.

Have a shopping list. Having a shopping list will prevent impulse buying. If you are shopping for Christmas presents, list down the people you will be buying for and budget to prevent giving a pretext of getting a gift for yourself!

Look for good bargains as far as reasonable and practical when making any purchases. Use discount vouchers where possible. But the important thing is, use vouchers only for things you have on your shopping list, not on any impulse buys.

But the most powerful method is seeing yourself as a smart spender. You are smarter than others because you know the difference between 'must have' and 'feel good to have'. You know which advertisement or news is trying to stir your emotion and turn you into an impulse buyer. You will avoid spending too much on things that will depreciate quickly, but will put your money where it will gain value over the years.