It’s an important question to answer. Tracking your spending may seem simple, but it can make a big difference in your personal finance. The sad truth is that many people don’t realize they are having financial problems until it’s too late. The simple habit of tracking your spending can help you avoid such a situation.
Make no mistake: even if you earn much, not tracking your spending could easily lead you into financial trouble. One example is Michael Jackson. He was a great artist and left a great music legacy. We can all learn from his passion and dedication. But, just as with me and other people, there are also things from his life that we should learn not to do. One of them is in personal finance. Here is what The New York Times wrote about it:
“It’s all a mess,” said one executive involved in Mr. Jackson’s financial affairs who spoke on the condition of anonymity out of respect for the entertainer’s family. “No one really knows what is going on, but these are early days.”
It’s estimated that he had between $400 million to $500 million in debts.
But why did it happen? How could someone who earned so much have such a big debt? The New York Times article explained why:
“He never kept track of what he was spending. He would indiscriminately charter jets. He would buy paintings for $1.5 million. You couldn’t do that every other week and expect your books to balance.”
This is an important lesson for all of us. No matter how much you earn, if you don’t track your spending then your personal finance would be out of control. Tracking your spending is essential because it gives you awareness of your financial situation. It helps you see whether or not you spend less than you earn which is arguably the most important rule to follow in personal finance.
So, if you haven’t tracked your spending, today is the best day to start. You can use a spreadsheet or a personal finance application like Mint and Quicken. It does take some effort, but the financial awareness and control it brings far outweigh the effort. Furthermore, getting your financial life in order is a good way to also get other aspects of your life in order. Why? Because not only having good financial habits frees you from financial worries, but also it can develop positive attitudes like discipline and responsibility. These attitudes will affect other areas of your life beyond personal finance.
Photo by Andres Rueda