Control of Personal Finances
What does taking control of your finances mean?
Taking control of your existing finances need not be difficult. In fact, it
can be relatively easy, yet most people have very little if any control over
their personal finances. Why is this so?
Well, in order to take control over your existing finances you must first
want to take control over your personal finances. In other words, you
must first define taking control of your personal finances as an
objective, a goal that you actively seek to accomplish. You can start with
a positive affirmation like this:
I can take control of my personal finances and I will
Once you have established in your mind that you can and will take
control of your personal finances, the next step is to implement a
number of actions on a daily basis.
can be relatively easy, yet most people have very little if any control over
their personal finances. Why is this so?
Well, in order to take control over your existing finances you must first
want to take control over your personal finances. In other words, you
must first define taking control of your personal finances as an
objective, a goal that you actively seek to accomplish. You can start with
a positive affirmation like this:
I can take control of my personal finances and I will
Once you have established in your mind that you can and will take
control of your personal finances, the next step is to implement a
number of actions on a daily basis.
Very little progress will be made in taking control of your personal
finances unless you are convinced that there is a problem with the way
you currently spend. Convincing yourself that there is a problem with
your current expenditure pattern is only possible after you have analyzed
your expenditure pattern. This will not be achieved over night, so it helps
if you think of this exercise as a process comprising many "baby steps"
over time that will culminate in your goal.
If you are proficient in Excel, then all you need to do is to create a
spreadsheet with three columns: area of expenditure, amount, and a
brief description. If you are not proficient in Excel then a simple notepad
will do. Simply set up three columns in a table with headings as
identified above.
On a daily basis enter each area of spending, the exact amount spent,
regardless of how small. Repeat that exercise everyday for a week,
starting with a new worksheet each day or a new page on a notepad. At
the end of the week you will have seven worksheets, or seven pages
with your daily expenditure summary.
Now proceed to analyze your spending pattern, asking yourself as you
come across each area, whether the spending is a necessity or luxury.
You can do this by placing a symbol in the third column to identify luxury
and necessity. After doing this, total all your luxury spending. This gives
you an idea of your potential savings.
In the second week draw-up a new set of worksheets as in week one.
But this time write down the areas where you intend to spend and leave
out the areas of your luxury spending. Initially, you may wish to keep
some luxury spending, that is not unusual. Proceed through that second
week noting all your spending in key areas. At the end of that second
week you would have saved some money.
Repeat this exercise for another two weeks or longer if necessary until
you have eliminated unnecessary spending from your life. Your
cumulative unnecessary spending becomes your immediate savings.
The savings identified should be moved into a separate bank account
and this becomes your minimum monthly savings target. By your
second month of doing this exercise you can decide up-front that you
can save an amount $x each month from your monthly income.
But remember, the key to this approach to taking control of your
personal finances is to make "baby steps" - try crawling before you
actually walk. Do not attempt to save a large sum or percentage of your
income at once. It invariably will not work! Build your monthly savings
target gradually starting with as little as 1% or 2% of your income and
increasing it gradually by another 1% each month until you have
reached the target goal that you have set for yourself, say 12%.
Analyze your current expenditure pattern
Treat your savings as an obligatory expenditure
Most people who experience difficulty in saving have a basic problem.
They treat savings either as a residual or as income available to them
upon demand.
Treating savings as a residual implies that the amount saved in any
period is unpredictable and can range from a large percentage of
income to none at all. Experience shows that unless a specific goal
has been identified for use of money it will likely be expended.
Expenditure is the natural action for money, so residual savers tend to
be less successful at saving.
Alternatively, treating your savings as income available to you upon
demand will only result in a massively fluctuating bank account as you
will return to your account time and again to make another withdrawal.
The best way to save and give your savings a chance to grow is to treat
your savings as an expense from your income. More importantly, treat
your savings as an obligatory expense, similar to a tax to the state or
federal government. An obligatory expense on yourself, which is no
different from an expense in buying new clothes or taking a vacation.
The point is to try to forget that the money exists, or that it exists but only
for a special purpose or stage in life - when you are much older
perhaps or no longer able to work.
You will also find that placing your savings in a physically remote bank
account, that you do not have easy access to might help. So, avoid
instruments like debit cards for that particular account and certainly,
you would prefer to disable online banking for that account.
They treat savings either as a residual or as income available to them
upon demand.
Treating savings as a residual implies that the amount saved in any
period is unpredictable and can range from a large percentage of
income to none at all. Experience shows that unless a specific goal
has been identified for use of money it will likely be expended.
Expenditure is the natural action for money, so residual savers tend to
be less successful at saving.
Alternatively, treating your savings as income available to you upon
demand will only result in a massively fluctuating bank account as you
will return to your account time and again to make another withdrawal.
The best way to save and give your savings a chance to grow is to treat
your savings as an expense from your income. More importantly, treat
your savings as an obligatory expense, similar to a tax to the state or
federal government. An obligatory expense on yourself, which is no
different from an expense in buying new clothes or taking a vacation.
The point is to try to forget that the money exists, or that it exists but only
for a special purpose or stage in life - when you are much older
perhaps or no longer able to work.
You will also find that placing your savings in a physically remote bank
account, that you do not have easy access to might help. So, avoid
instruments like debit cards for that particular account and certainly,
you would prefer to disable online banking for that account.
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Steps to taking control of your existing finances
Taking control of your existing finances means that your spending
pattern is not on auto-pilot. You are in total control of how much you
spend, when and on what.
Even if you are immensely rich today, you will find that unless you
exercise some control over how much you spend and on what sort of
areas, products or services, you may likely end up being bankrupt at
some stage.
Classic examples abound of individuals who inherited tremendous
wealth at birth, but who from a lifestyle of reckless expenditure and poor
investment decisions end up in abject poverty. Equally, numerous
examples exist of individuals who started off in poverty and became
immensely rich by their early adult life.
Control over personal finances explains the difference between those
individuals. Such control stems over a desire to succeed guided by a
disciplined mind that is goal-oriented.
pattern is not on auto-pilot. You are in total control of how much you
spend, when and on what.
Even if you are immensely rich today, you will find that unless you
exercise some control over how much you spend and on what sort of
areas, products or services, you may likely end up being bankrupt at
some stage.
Classic examples abound of individuals who inherited tremendous
wealth at birth, but who from a lifestyle of reckless expenditure and poor
investment decisions end up in abject poverty. Equally, numerous
examples exist of individuals who started off in poverty and became
immensely rich by their early adult life.
Control over personal finances explains the difference between those
individuals. Such control stems over a desire to succeed guided by a
disciplined mind that is goal-oriented.
Evaluate your savings success each month
It may seem obvious, but it is not! The only way you will know whether
you are on the right path to success in taking control of your personal
finances is to evaluate your performance monthly. Once a month write
down the savings level achieved for that month and compare it with
previous months. Do not be discouraged by your incremental
performance from previous months. Remember, it is a process of
taking "baby steps" towards your goal.
you are on the right path to success in taking control of your personal
finances is to evaluate your performance monthly. Once a month write
down the savings level achieved for that month and compare it with
previous months. Do not be discouraged by your incremental
performance from previous months. Remember, it is a process of
taking "baby steps" towards your goal.
Save a fixed percentage of your income monthly
A percentage is one part in a hundred of a quantity. So one percent
(normally written 1%) of say $100 equals $1. Similarly, 1% of say $1,000
equals $10 and 1% of $10,000 equals $100. You literally divide the
amount by 100 in all cases.
So, why you may ask should you save a fixed percentage and not a fixed
amount of your income? Well the reason is simple. When you save a
fixed percentage of your income the actual amount saved grows
automatically whenever you experience an increase in your income. So
as you saw above someone who saves 1% of his or her income will
automatically save $10 on an income of $1,000 and $100 on an income
of $10,000.
In this manner, once your target savings percentage has been reached
you need not worry about changes in your monthly savings amount
when you receive your next pay rise.
(normally written 1%) of say $100 equals $1. Similarly, 1% of say $1,000
equals $10 and 1% of $10,000 equals $100. You literally divide the
amount by 100 in all cases.
So, why you may ask should you save a fixed percentage and not a fixed
amount of your income? Well the reason is simple. When you save a
fixed percentage of your income the actual amount saved grows
automatically whenever you experience an increase in your income. So
as you saw above someone who saves 1% of his or her income will
automatically save $10 on an income of $1,000 and $100 on an income
of $10,000.
In this manner, once your target savings percentage has been reached
you need not worry about changes in your monthly savings amount
when you receive your next pay rise.
Automate your monthly savings
Automating your savings means automatically saving from your income
each and every month. Literally everyone has an extensive amount of
automated monthly payments from their income. Taxes are deducted
automatically; if you have a mortgage or other loan that is deducted
automatically; support for a spouse, insurance, utilities and a host of
other payments are automatically deducted from your monthly income.
So why should your savings not be deducted automatically as well?
When a payment is deducted automatically from your income you have
no control over it. The amount payable is triggered by a date and your
bank automatically pays that amount to the payee in question.
Similarly, real progress will be made with your savings when you
automate the process. You can do that by instructing your employer to
pay a certain percentage of your income into another bank account, just
as is done for your taxes. That way the money never comes into your
general bank account where you may be tempted to use it for some
other purpose.
each and every month. Literally everyone has an extensive amount of
automated monthly payments from their income. Taxes are deducted
automatically; if you have a mortgage or other loan that is deducted
automatically; support for a spouse, insurance, utilities and a host of
other payments are automatically deducted from your monthly income.
So why should your savings not be deducted automatically as well?
When a payment is deducted automatically from your income you have
no control over it. The amount payable is triggered by a date and your
bank automatically pays that amount to the payee in question.
Similarly, real progress will be made with your savings when you
automate the process. You can do that by instructing your employer to
pay a certain percentage of your income into another bank account, just
as is done for your taxes. That way the money never comes into your
general bank account where you may be tempted to use it for some
other purpose.
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