Having met hundreds of people and clients, and helping them gain visibility of their financial state, it is surprising to meet a fair share of people who still have no idea what their numbers are.
By numbers, I’m referring to what their average expenses are on a monthly basis. If you have ballpark figure at the back of your mind, that is not too bad, but can I encourage you to do slightly better for your own sake? This is certainly not the most exciting thing to do, but I know that it reaps huge returns for those who have taken the time to work through the numbers. Here are some of the benefits that I personally experience and have witness in the lives of my clients:
1. Emotional assurance. Regardless whether your expenses are relatively low, or even if your expenses are very high, knowing the numbers gives us some assurance that you know exactly where you stand in terms of your cashflow. You may not be happy that you are spending more than you should, but at least you know. And that in itself removes a certain anxiety or fear that you may find yourself in a position that you’ve not expected to be in.
2. Motivation. Knowing how much you are spending will also give you that added incentive and push to be more careful about what you take your credit cards out for. There will always be this internal yardstick for yourself to try and keep within those numbers. So when you are next tempted to buy a beautiful shoe that you may not need, this internal measure could proof to the deciding factor between an impulse buy and a properly calculated purchase.
3. Peace. As you know how much you’ve budgeted to spend every month, you will feel a certain peace when you need to buy the stuff you’ve budgeted for, without having to have that inner-conflict on whether you can afford it or should do it.
4. Defined planning. Once you know your numbers, it makes it a lot easier to plan for things going forward. Your holidays, your next LCD TV, your next car, etc. I realized that when I know how much I’m spending each month, it gives me a lot of clarity to make confident plans.
Hopefully these 4 points are sufficient to convince you that you should know your fixed and variable expenses. I definitely do not think you need to track this on a monthly basis, of course if you can do that, it’s even better (I don’t!). But I would strongly encourage that you do it at least once a year. Our expenses do not change that much especially the fixed components, and knowing the expenses that are bound to come in month after month, is important to know and have at the back of your mind.
Best thing is, it really doesn’t take a lot of time! I would estimate a maximum of 30 minutes is sufficient. You do not need to track every single detail, but make reasonable estimates based on your past bills, that would be good enough. To help you with this, I’ve designed a simple EXCEL spreadsheet that you could use to help you think about all your possible expenses to get you quickly started if you’ve not already done so. You can download the EXPENSE TRACKER here.
Once you’ve completed it, save it in your household folder (you should have one) that you can use as reference whenever you need and when it is time to do another review of your expenses. Trust me, the time taken is more than worth your while.