At the beginning of every new year, many people review the past year and set goals for the new one.
For personal finances, these goals revolve around having more money or getting out of debt.
By definition, the money you have (or save) is the money you make minus the money you spend. So you need to make more money, spend less, or both.
A frequent fallacy is focusing only on making more money and not paying attention to spending. The harsh reality is that no matter how much money you make, without paying attention to your spending, you’ll quickly learn to spend it all. Parkinson’s law states: “Work expands to fill the time available for its completion.” This applies to money even better.
Reducing spending is uncomfortable, as one of the hardest things you can do is give up a comfort you got used to. Leasing a nice car, going out for drinks or to expensive restaurants, or taking exotic vacations are all very pleasant, so suddenly stopping to do that is hard.
So do you need to spend less? Maybe not. But the only way to determine this is by consistently tracking all your expenses. This is what our software does, so, of course, we recommend this for your New Year resolution.
By tracking your personal finances in detail, you’ll find out where your spending happens. Then, you can make informed choices about cutting significant expenses that bring little joy. A bet we’re willing to take is that you’ll be surprised. To test this, when starting, write down whatever you think you’re spending in each category, and after a month or two, compare the actual reality to what you thought your reality was.
By increasing your savings, even if you continue to work like you do today, you’ll have the peace of mind that if you lose your job, you’ll have plenty of time to recover without going into debt. This peace of mind will do wonders for your mental health.
Also, if you decide to start your own business one day, these savings will allow you to do that. This can be your ticket to your dream should you choose to go down that road.
So, just like you decide to go to the gym to get in shape, for your financial goals, start with tracking your finances.
Convinced? Create a free account and get started.
Happy New Year!