It’s Time To Track Your Spending And Change Your Life
Posted on February 2, 2010
A couple of years ago, I wrote an article about the different individuals I had observed by hanging out in several convenience stores and watching their spending patterns. There was a major difference between those who were obviously wage earners and those that appeared to be executives or professionals. A far greater number of the wage earners came into the store to pay cash for the fuel they put in their vehicles and many would only put in $5 – $10 rather than fill up. On the other hand, nearly all of the executive/professional types paid at the pump with credit cards.The natural assumption would be that wage earners have to be more careful with their spending because they don’t have as much money, but that wasn’t the case. Although a large number of the wage earner types only bought $5 – $10 worth of fuel, nearly every one of them bought beer, cigarettes, smokeless tobacco, candy or other type snack foods. Conversely, the executive/professional types, when they did come into the store, usually bought items like milk, bread or other staple items, which I got the impression were purchased to avoid an additional stop at a grocery store.
I’m not trying to be critical; I’m merely pointing out what I found to be an obvious difference in the spending habits of people and one which could play an important role in whether or not they achieve financial success. Impulse spending, even for small items like junk food or drinks can add up quickly. Something I learned at an early age is that it’s nearly impossible to improve your finances until you know where your money goes. Converting a single bad habit like drinking a $4 cup of latte daily into a savings program can have a dramatic impact over the course of a lifetime.
The one exercise that I did early in life that had more effect on my spending habits than anything I’ve done since was recording all of my spending for an entire month. I know you’ve probably read or heard dozens of financial counselors say something similar, but I actually did it. I bought a small spiral bound notebook that would fit in my shirt pocket and started writing down every penny I spent. If I bought a soft drink, I wrote it down. If I bought a candy bar, I wrote it down. Everything! Groceries, gas, cigarettes (yes, unfortunately I smoked at the time), clothes, bowling, even a piece of bubble gum, I wrote it down. At the end of the month, I did a simple analysis; I went back and categorized the expenditures as either necessary or unnecessary.
Mortgage payments, utilities, food and similar expenditures fell into the necessary category. Things I wanted, but didn’t actually need, were categorized as unnecessary. Cigarettes, candy, soft drinks, records, a new pocket knife and a new bowling ball were things that showed up on this list. The hardest part of doing this was being honest with myself when doing the categorization. We all have a tendency, just after making an impulse purchase, to start trying to justify it in our own minds. After all, who wants to look stupid to themselves?
When I say this exercise had more effect on my spending habits than anything I’ve done, let me explain why. When I totaled the list of unnecessary expenditures I had made in just a single month, I was shocked to discover that it amounted to over $600. No wonder I was like so many people who complain about coming to the end of the money before they get to the end of the month. This exercise taught me a valuable life lesson. I could change my life by just changing what I did with the money I was spending on unnecessary things.
To help curb my impulse spending, I started paying for all purchases with bills and saving the change. The change became sacred. I wouldn’t spend it no matter what. I found it was much harder to break a $20 bill to buy a soft drink or candy bar than to buy it with the change I had in my pocket. This may not seem like much of a life changing experience, but it helped me develop a habit of saving that I’ve since expanded to many other areas of my life.
Here’s a tip! The government has just officially announced that we are in a recession. As the kids say … “Duh!” We all knew that months ago, but now it’s official. With credit tight, jobs scarce and money becoming increasingly hard to come by, what better time could there be to reassess your spending habits? Don’t wait until it’s too late. Make a commitment to analyze your spending habits now. Where can you make cuts that will allow you to pay off debt sooner or increase savings?
If you want to use my methods, fine. If you have other ways of tracking and taking control of your spending, that’s fine too. What’s important is that you do it and do it now. We don’t know how long this recession will last or how deep it will be. You can ask 100 economists and probably get 100 different opinions. The only opinion that really counts is how it is affecting you and your family. The sacrifices you make today to get your financial house in order will pay huge dividends in the future. The best way to solve the nation’s financial problems is not to become part them.
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2 Responses to “It’s Time To Track Your Spending And Change Your Life”
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Mike,
I learned a lot from your CD. I am practicing what I learned. I just hope and wish to meet you in person
Thanks
Girma
Mike,
I enjoy reading your “Success Tips” posting. It helps me prepare my 3 and 5-year old kids with their financial future. Also, your “Offer Generator” helped my family with our recent investment purchase. When I first read your Weekend Millionaire Book, I thought, there’s no way that I can find a house in Los Angeles that will meet the NOI numbers. To my surprise, it is possible with high intentionality and having a trusted team behind us. More power to you and many thanks to the knowledge and experience that you share.
Have a wonderful Holiday Season!
Maureen