Challenges make you discover things about yourself that you never really knew.
–Cicely Tyson
One of the cardinal rules about Mastering Money is that our income MUST be greater than our outgo. In simple words, spend less than you earn.
The way to initiate is to keep track of every cent that comes into or goes out of our life. There are many ways to do this, and so there is a method that will suit almost everyone:
Personally, I keep receipts of every purchase I make in my wallet. At the end of the day, when I come home, I transfer the receipts into a folder I have created for expenses for that month. For example, ‘Expenses Nov 2006’. For those items that I don’t get a receipt for, I write down the expense on a small slip of paper and put that in my wallet.
At the end of the month, I add up all expenses in the folder for that month, under the appropriate categories. Now I know exactly where my money is going. If I happen to spend too much money in one area, I will know immediately and can make necessary changes in money allocations for present and future months.
I have been doing this for years and it works incredibly well. It’s really useful to get an idea of what my total monthly expenses usually look like, as well.
You can use any category structure that you like for tracking expenses. I like to keep things as simple as possible. I use the 10 category structure that I got from Robert G. Allen:
1. Giving (Charity, Donations, etc.)
2. Self (Savings)
3. Taxes (Income tax, property tax, etc.)
4. House (Mortgage, rent, etc.)
5. Household (Household expenses like groceries, etc.)
6. Auto (Auto expenses like gasoline, etc.)
7. Fun & Entertainment (Dining out, buying toys, etc.)
8. Insurance (Insurance premuim expenses)
9. Miscellaneous
10. Business (Business expenses if you own a business)
Once you know how much is going out on a monthly basis, you will have the necessary data to know how much you need to bring in on a monthly basis. It’s common sense and a very simple mantra.
If you don’t follow this simple mantra, you will not be able to see exactly where your money is going, and where you can curb expenses if you need to.
Warren Buffet has 2 rules about money:
1. Never loose it
2. Never forget rule number 1
There are 2 things that I will continue to do as long as I can live. One is to keep a journal and the other is to always, always, always pay myself first.
How about you, Wanna Master Money?