Knowing the purpose of money
“The secret of success is to do the common things uncommonly well.” – John D. Rockefeller
For some of us, tracking our spending is a necessity. The amount flowing into our bank account each month is close enough to the amount flowing out that tracking our expenses is a key factor in making sure that we stay on top of our finances. Once we reach a point though, where the amount flowing in is more than enough to cover our expenses the incentive to keep a close watch on our spending can drop and it becomes very easy to lose perspective on exactly how much we’re spending each month.
Delayed gratification or instant pleasure?
As human beings our brains are hard-wired for pleasure and for many of us, indulging in a little retail therapy can be very pleasurable. Saving on the other hand is delayed gratification, it can be rewarding to see our funds grow but saving tends to give us most pleasure when we access the funds in order to make a purchase or to fund a gift or experience. Our subconscious drive for immediate rather than delayed gratification means that we’re less motivated to save and consequently less driven to track our expenses unless doing so helps us avoid the pain of unpaid bills and late fees.
So how do we make saving a pleasurable experience? It’s all about changing perspective; choosing to see saving as empowering rather than restricting and choosing to see random spending as hindering our future success. Once we find a motivation for holding on to our money our focus switches towards strategies for minimizing spending and maximizing savings and a great place to start with this is in tracking our spending.
Track and trim
Tracking your expenses can be as high tech or as low tech as you like. You can track your incoming and outgoing money using a notebook, a spreadsheet or an online tool such as mint.com. Whichever method you choose, make sure that you track each and every transaction no matter how small. It is often the small purchases that combine to make a surprisingly big impact. When I first started tracking my own expenses I was shocked to discover I was spending almost $200 a month in coffee shops. Most of that was business related; I often meet clients and contacts over coffee and sothe solution to reducing my expenses wasn’t as simple as’just stop buying’. What I realized though, was that just because I was meeting in coffee shop didn’t mean I had to have a $5 latte every time, I could order a tea instead. The latte was just a habit; by switching to a $2 tea I could still get all the pleasure of the coffee shop environment and have an “extra” $100/mth to funnel towards my savings goals – enough for a flight home each Christmas!
Try tracking all of your expensesfor at least a month and thentake a look to see how much you are spending and where your money is going. J.D. Roth of Get Rich Slowly suggests a simple money management model of 50% for necessities (food, housing, transportation), 30% for wants (anything that isn’t a necessity including phones and internet!) and 20% for saving(10% for retirement and 10% for other savings goals). The simplicity of this model makes it easy to see where you’re spending too much money and where you need to redirect extra funds.
Related article: A disciplined spending plan
If you canstart to get excited about putting your money to work for you by holding on to as much as possible you’ll find you can get very creative in finding ways to cut back on the wants so you can funnel more into savings and, most importantly, you won’t feel deprived by doing so.
Defining the purpose of money
All this creativity is fruitless though if you don’t take the time to give your money a purpose. What are your goals for your money? How much are you trying to accumulate and for what reason? Do you have travel goals, family goals, goals to build a legacy to benefit your family or an organization? Are you trying to eliminate debt? Achieve financial freedom? And, if so why? What will you do with your time once you no longer need to commit those hours to working? Building money gives us the freedom to dream and the power to impact the world in a hugely positive way but we need to know what we’re trying to build and why we’re driven to achieve our goal if we want to maximize our chances of success.
Take some time this week to think about your financial goals. What do you want to achieve and why? What action plan do you need to put in place in order to reach your goals? How can you track your spending toidentify unpurposed money?
Related article: How to set SMART Financial goals
Giving your money a purpose gives you a positive reason to start paying attention to how you are managing it and can be a surprisingly powerful tool in helping you to build wealth and financial security.