Time for Reflection

Today is 3 months since you started tracking your expenses.

How did it go? Did you gain any insights into where the money was going each month? Did you change how you spend your money?

For those who just followed the instructions and diligently wrote in the notepad each day without reviewing any of the previous entries, today we are going to pull apart your data and make some decisions based on it.

For those using the notepad, I want you to grab a highlighter and highlight each item that is an inflow of money. This includes your paycheck, money found on the street, birthday cash, dividends, etc.

Anything not highlighted is an expense or an outflow of money.

Let’s review the money outflows first.

We are going to categorize each expense. The categories are Necessity, 1-time splurge, can avoid for now, cannot give up.

What the categories mean:

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• Necessity: this is either a requirement of law, ie. if you own a car and want to drive it you need car insurance or want a roof over your head and a place to call home then you need to pay rent or mortgage
• 1-time splurge: this is something like a friend’s birthday party/gift. It is not a recurring charge
• Can avoid for now: I put my morning stop at Starbucks for a Cafe Mocha Grande on this list and changed to brewing my own coffee at home. For some of you that morning coffee stop may end up in the cannot give up category.
• Cannot give up: this is for items that you feel are necessities for you. Others may consider them items they can give up to get their financial house in order, however, for you giving up this regular expense would just be too much to bear.

To do this exercise I would suggest getting regular 8-1/2 x 11 sheets of lined paper and make 4 columns and then take each expense item from your notepad and add it to the appropriate column.

I would include the item description and dollar amount so you can see at a glance how much you are spending on items that can either be avoided altogether or were 1-time splurges. These will likely be the easiest to remove from your current financial plan with a little forethought.

The necessities category will be compared against your current income to see whether there might need to be some changes in these items as well. For example, you may have been able to afford that large house and fancy car when you were working as a defense contractor however when you got laid off because the contractor lost the contract you could only find a position making 2/3 of what you had been making. Well, you get the idea.

At this point in your financial plan, you need to get crystal clear on where you are financially and what you can change to make things better.

I am not suggesting you sell everything and live in a monastery however, I am suggesting that making some tough choices today and following a budget can lead to significant financial rewards in the future.

Do not skip this step. It is important to know where your money is going so you can build a workable budget that takes into consideration your necessities as well as your cannot give up items and leads to a financially secure future.

I also advise not rushing through this step. It is imperative you feel confident in the decisions you make for each expense item and agree to live with that decision for the next 1 to 2 years.

In most cases, your current financial situation did not happen overnight so do not expect to substantially improve it overnight!

I believe in you!