Where is your money going?   

A friend of mine was baffled to check her monthly bank account statement one day.  Even after reviewing the statement which outlined every penny being spent, she seemed so lost, still wondering where did the money vaporise. I bet most of us can relate to this account.

So how many of you who are reading this article know exactly how much money is present in your wallet right now? Or how many of you are totally aware of your bank account balances?  I bet very few. Its not about remembering the figures as it is about being aware of your money.

Ever pondered about how much do your monthly expenses constitute as a proportion of total income? Or how much are you able to save every month – 10 per cent or more of your total income? Or how much savings lie idle in your bank account and how much is invested regularly?

To know the answers, you need to keep a tab on your cash inflow and outflow. Or else, there is a possibility you might be piling up unnecessary debt.  You may require a desired big sum but it maybe not on hand at the crucial hour.

The first and foremost thing to do to manage your finances better is to journal your spending (has worked wonders for me). Jot down each and every expense (even if the amount is peanuts spent on a pen refill) on a daily basis or a weekly basis, as it suits you.  Once you get into the regular habit of maintaining an expense journal, you will be able to find holes where you can cap unnecessary spending. You could even segregate your expenses under the head ‘fixed’ and ‘variable’ and analyse where you could plug non-essential spending.  Here are some examples:

·  Under the variable expense head, it could be eating out on two weekends instead of four in a month.     Developing a tendency to eat out less will do your health a lot good as well.

·   When you go shopping, make a list in advance and then stick to it. Shopping with a plan will enable you to curtail spending on needless items and will save time too.

·   There are certain fixed expenses which you need to pay every month like your groceries, utility bills, EMI on housing loan and insurance premium. You can do your bit of homework here too. For instance, you can use your annual bonus or commision earned at work to prepay a part of your home loan. Prepaying the amount at the begining of the loan term will save more interest than at the end.

 

·  Review your insurance cover. Do you have expensive policies in your kitty wherein you are paying huge premiums but with inadequate life cover? If the answer is yes, then you have jumbled up your insurance and investment objectives. You may discontinue the expensive policies yielding mediocre returns and buy a term insurance policy. This is the most purest and cheapest form of life insurance cover. That way you can save on premium money and invest the surplus prudently in other high-yielding securities like mutual funds.

These were some instances about frugal spending. You can make your own list by taking a hard look at your spending habits,brainstorming and identifying the less important or avoidable items. Ask yourself,can I  cut this expense completely or downgrade it. Mind well, the aim here is not to become a miser but to differentiate between wants and needs. If you find you have to spend extra on one item, cut that amount from some other unwanted expense.

In a span of three months, reviewing your journal and comparing it month-on-month will help you get a better grip on your finances. You need not make too many changes in your budget in one shot. Take small steps and gradually build up the momentum. After a while, it will become second nature to you. And, soon you will be able to reap the benefits of more money in your wallet month after month. This new found surplus can then be used to increase the amount you dedicate towards saving for emergency or investing. Thus, taking charge of your money would mean having a better control on your savings and investment and a sure shot path to financial freedom.

So take a notepad now and get going...