I think one of the most important things to think about as you move into the new year is how you take care of your financial obligations and how you handle your cash flow. Cash flow is an important concept and one that some people seem to have trouble grasping.
All of your income and all of your spending needs to be accounted for, and this was brought to mind yesterday when my youngest daughter got her W-2. She looked at it and said, “where did all that money go?” and I said, “you know, that’s a good question” because it’s one that most people don’t have a clue about.
I’ve heard it suggested that for a month you don’t use any cash. All your transactions should be done with your debit card. ALL your transactions. No cash withdrawal whatsoever. I know that could be tough, and maybe there are a couple things that you absolutely have to use cash for – a store or restaurant that doesn’t take cards, or something of that nature. Then take cash out, have a receipt printed and write down exactly what it was for.
At the end of the month, your eyes may open up a bit. Cash tends to spend easily and mysteriously, but the card leaves a very conspicuous trail. You’ll soon learn what your habits are and where that hard earned money really goes. Divide up your spending into piles. Only you can determine what all the piles are called, but you can start with mortgage/rent, car payments, insurance, food, credit card bills, entertainment.
Only when you know what you spend and how you spend can you take control of what you are doing. Use that month as a very important learning experience and build off what you have learned. Some folks can greatly reduce expenses simply by tracking what and where the money trail tells.
