Have you ever checked your bank balance online and wondered how is my visa bill that high? Or even better, been afraid to check it knowing it’ll be depressing?
I was recently working with a friend to help them review where exactly they were spending their money. The conclusion? They spent over $3,000 in the last three months on restaurants, bars and alcohol. $3,000! Think this is a high amount? Think again – I bet if you reviewed your spending over the last few months you would find some shocking insights as well.
While they were able to reduce their spending in this category, there are two important lessons we can learn here:
#1) Being AWARE of how you spend your money is a huge advantage when budgeting and meeting your savings goals. We often get in the trap of just tapping our credit card without consciously understanding where we are allocating our money.
#2) Your spending often reveals your priorities and what’s truly important to you (Ramit Sethi has a great article on prioritizing here)
Think about it. If your visa bill is constantly filled with dining and bar expenses, then you likely prioritize your social life and place value on food and relationships with your friends. If your biggest expense is airfare and accommodations, I would guess that travel makes up a big priority in your life.
You might also find out that where you are spending your money doesn’t align with your true priorities or values at all. In this case, this awareness is very important as it allows you to make the necessary changes to your spending habits so that your discretionary spending matches what’s important to you.
This concept of Spending Awareness is very important in mastering your financial life. Budgeting is great (boring…) and important (really boring…), but is crucial to financial success. This doesn’t mean forecasting and calculating where every penny goes, but rather using tools to automate the tracking of your spending so that you become self-aware of what your true priorities are and budget accordingly.
This self awareness will allow you to spend freely on what’s important to you and reduce spending on areas that are not, so that you can reach your long-term financial goals while enjoying life.
For the next 7 days, try to mentally track your spending to become more aware of where your money is going. This mental tracking is very difficult and often the reason why we look at our bank balance at the end of the month and wonder where it all went, but is a great start to building your spending awareness.
I’ll also be creating a step-by-step guide on how to automate this tracking using an app called Mint. Using this tool alone has enabled me to save thousands of dollars over the years by understanding my spending habits and where I can make small changes for the biggest impact.
This guide will focus on two areas:
#1) Reviewing your recent spending history to build that awareness and realize if you are truly spending money on items/experience that you value
#2) Creating an automated tracking system to monitor your future spending in under 10 minutes per week
Look out for this in the upcoming weeks.