About Donell Edwards: Donell Edwards is President of CWR Media and is also founder and publisher of The College World Reporter (CWR) magazine and CWR World News & Information Service. He is also a professional speaker, freelance writer, and entrepreneur.
Know Your Money
Monday – March 3, 2014
Knowing Your Personal Finances
The First Step – Monitoring Spending
By Donell Edwards
As we mentioned in our introduction, our goal with this blog is to provide information that helps readers learn and implement a step-by-step plan to eliminate debt and build wealth. There is no better starting point than evaluating spending habits. That is where we begin with this post. We will move on from there over the weeks and months to debt elimination, saving and building and emergency fund, tax reduction, and investing.
Where most of us get into trouble with spending is our budget. If you are among those who have a realistic budget and you follow it closely, we commend you. However, if you do not have a budget, or if your budget is not realistic and you have difficulty following it, this post will provide you with some things to consider seriously.
First of all, what do we mean when we refer to a ‘realistic’ budget? This means that your budget should be based on your real income and real expenses, not what you expect to make through working overtime, or other potential sources of income that you do not currently have. It must be based on the income that you know you have coming in. It should also include all, and I want to emphasize this, it has to include all of your expenses. If you eat out for lunch, go to the movies frequently, go to the golf course and pay fees, engage in any type of entertainment or recreation, dry cleaning, whatever you are spending money on a regular basis for has to be included in your budget.
So the first step in evaluating your spending is to monitor your spending for at least a month. Keep a daily diary of what you are spending. At the end of the month you may be surprised at how you spent your money.
After you have allowed sufficient time to evaluate your spending, whether this is one month or several, then adjust your budget accordingly to eliminate wasteful spending. Be honest, don’t continue to waste money on non-essentials or things you simply cannot afford.
Wasteful spending and not being aware of it is the reason many people don’t have enough money to pay all of their bills at the end of the month. By conducting a simple spending evaluation as we have suggested, you will be able to determine where every penny you have was spent and adjust accordingly.
However, wasteful spending is not the only reason for having a budget crisis. Some just do not earn enough to provide for themselves and their families. They are among what is known as the working poor. If you are in this predicament you are not alone. Far too many people today find themselves living from paycheck-to-paycheck. Why? What can be done about this?
I know firsthand how this feels. I know what it is like to work out a budget only to find there is just not enough money to pay all the bills, and then having to determine what bills to pay and which ones to ignore. It is a sickening feeling.
How did we get here? Was it because of mismanagement? Probably that had something to do with it. However, for many of us it was not one thing, it was a series of events over a period of time that happened so gradually that we fell asleep at the wheel before we realized what was happening.
What I learned after being downsized from my career position of over 11 years with IBM Corporation was to monitor my spending much better, on a regular basis, and to put money into an emergency fund. In my case, in many months only an additional $50 – $150 would have helped me meet my budget. In fact, studies have shown that only an additional $150 a month would have prevented a large number of people from filing for bankruptcy.
When we are making enough money to cover all of our monthly expenses, and maybe we even have a little left over, we develop some careless, really wasteful, spending habits. When things tighten up due to an illness, demotion, loss of job, addition to the family, unexpected household maintenance, vehicle repair, or other unexpected expense, instead of adjusting our budget we want to maintain the same lifestyle we had before the emergency occurred.
That is why it is best to monitor the budget on a regular basis and make adjustments before a crisis. However, if we find ourselves in a situation where we have failed to monitor our budget and we get hit with a series of unexpected financial events, then we must do whatever is necessary to reign in our spending and get back on budget. This may involve taking on part-time work temporarily, negotiating reduced payments with our creditors, eliminating unnecessary spending, declaring a moratorium on all new spending, and other cost saving measures.
Identifying what you are spending your money for and monitoring spending is a key to changing and eliminating destructive spending habits.
I found the article (link below), 10 Ways to Jump-Start Your Frugal Life, from the Credit.com Blog to be very helpful and informative. It is written by award winning journalist AJ Smith and provides some interesting ideas on how to control spending. Here are some of the main points from AJ’s article:
- Have A Goal You Can Achieve
- Define Your Needs
- Keep Track Of your Spending
- Give Your Credit Cards A Break
- End the Email Enticements
- Shop In Your Home
Read AJ’s entire article at the link below:
We will talk more about spending habits in our next blog.
If you would like to share with our readers how “bad” spending habits have affected you, anonymously or otherwise, for our upcoming special, “Confessions Of Spendaholics,” please send your experience to firstname.lastname@example.org.
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