We’ve talked about income - let’s stop being polite and start getting real. Time to dig in and explore how we spend that hard-earned money.
What's the goal of this step? Reduce and manage your expenses over time (and understand your current expenses) to increase your wealth.
Why is this important? Remember, there are two big levers to creating wealth - money in and money out. Today, many of us are pay our daily expenses with a debit or credit card. Studies show that cards encourage extra spending. It is much easier to lose track of the money we spend when we only have to swipe a card - compared to the physical act of removing cash from our wallet. Further, so many of our expenses are discretionary that reducing smartly in a few key categories can have a huge difference.
When and how do I do it? Start today by tracking your expenses, if you aren’t already. Over time we’ll look to smartly reduce your expenses to create more space in your budget. There are many, many ways to reduce and manage your expenses - let’s begin with the basics.
Where is your hard-earned money going? I started cataloging my expenses in Microsoft Money when I was a teenager (yes, I am a money nerd.) Since then, I have continued to use technology to track, categorize, and analyze spending. This allows me to find hidden areas where I over-spend (like eating out, which can add up fast), and identify costs that I don’t budget for (but should) like car maintenance and gifts.
There are several apps that will connect your bank accounts and provide a complete view of your household expenses. I have been a Quicken user for years. Two others to consider are YNAB (You Need a Budget) and Mint.
You work really hard for your money. You owe it to yourself to truly understand where your money is going, so you can effectively target areas to reduce and therefore grow your wealth. Further, if you track your money, you can budget more effectively, too.
So - how are you going to track your expenses? If you’re already tracking, what tools do you find useful?