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
One of the most user-friendly budgeting software apps that I have come across is YNAB. It’s very intuitive and makes it incredibly easy to set a budget for different categories over an entire year. They have a 7 day free trial and it’s not expensive to purchase a license. Highly recommended – http://www.youneedabudget.com/
I used to have this problem, I remember when I got my first credit card. Keeping track of money just went out the window, it didn’t matter, I bought now and paid later!
This went on for a few months and all of a sudden I had built up a debt of 10 000 dollars, which was pretty horrible for a young man.
My parents were luckily in a situation to help me out but I owed to pay them back so I got a good overview of my finances and started handling my money with care. 4 months later my parents had got their money back, plus interest and since then I have been able to slowly improve my economy each month that goes by.
People who don’t take control of their money get controlled by their money. It is an impoverished attitude smeared over with a false sense of abundance. The truth of the matter is wealthy people who stay wealthy watch their pennies. They can be very generous but you better believe they know where that money is going.
In 2000 I worked a normal job and earned around £25,000 per year pre tax. I had a lovely little house, a nice little car and some savings, I went on holidays, ate well, kept fit and had a nice wardrobe of clothes…and NO DEBT, other than a very small mortgage (circa £20,000).
By 2007 I was earning around £300,000 per year pre tax, but was in debt to the tune £300,000 and had a £200,000 mortgage!.
When I look back at what I was spending (£1,000 a month on dry cleaning, £4,000 on dining out, gardeners, cleaners, luxury holidays, trading my car in every 6 mths, motorbikes, vintage wine, paintings, antique furniture, watches and more watches etc, etc etc) I can’t believe it.
Okay, I lived a roller-coaster life for a whole host of complex reasons and have a very involved back story, but I lost all track of my spending as I considered myself just “too busy” to do anything about it.
I still don’t have true control yet, but I am a long way down the road to getting their and I am making ebay rich from the commissions I am paying them in selling off all of the “stuff” I accumulated in 8 years before it all blew up.
Thanks for your post,
O.K. it will be difficult but, you convinced me, I will cut back a little on buying $ 1,5 Million Paintings every other week 🙂
All the Best,
To your Happy Inspiration,
I’ve never heard of it before. I’ll check it out.
Credit cards do make it easy to spend more than we earn. I’m glad you have taken control of the situation.
Well said. I also agree that wealthy people know where their money is going.
Your experience clearly describes the point of this article. Thanks for sharing it.
These are some great points, and I have to say from personal experience mint.com is a great website. It’s so important to keep track of this aspect of your life and so many people seem not to do so. I can say I was one of those people in my early twenties, and I’m glad I grew out of it.
All of this goes back to the drive you have in life to be successful. There are reasons some people are more successful than others, and it has to do with drive. I recently wrote a blog about it. I would be interested to hear your thoughts about it.
thats so true
there are many rich people who are in dept because the dont track their spending
A great reminder for anyone. There will always be a time in people’s lives that tracking finances becomes a challenge. But with consistent focus and discipline, spending our earnings can save us from all the financial hassles and surprising losses. It’s a matter of being wise about our personal finances, re-checking our personal values with regards to spending/purchases and determining opportunities to save. Thanks for this post! I’m sure others would find it a helpful reminder as well.
very true. unless we learn how to track our spending habits we shall attract debt. thanks for the great reminder
It can get out of hand quickly, especially if you combine business with personal finances. I learned many years ago to keep from mingling the two,
Thanks for the reminders.
I couldn’t agree more with your comments about tracking spending. I often feel that if left unchecked, spending will just tend to “fill up” all of the available money–or more! I recently received a really excellent budget template as part of an assignment for a health systems management course I took, and I must say I love it. Just the act of tracking how where and how much of my money goes to each bill, rent, etc. helps me have a much better feel of what I can and can’t afford.
I just read your post on drive and passion. It’s interesting.
That’s right. It’s sad, isn’t it?
Yes, there are always difficult times. But as you said, consistent focus and discipline are key.
To be honest, I’m still not good at separating my business and personal finances. Your comment is a good reminder.
That’s one big benefit of tracking your spending: you are in control of your personal finance.
You just reminded me of how much more conscious I have to be of these things. It’s so tough when you genuinely like to spend money.
And Mint is a really awesome site. The application on the iPhone has made my life much much easier. Great post, I’m enjoying your writings!
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