Thursday, April 17, 2008

Expense - Know & Control - It's not how much you make, it's how much you keep

Remember the greates secret to amassing enough $? Yes? No? Well, it's such a stupendous secret that it's worth typing out again here ;P

The greatest secret to amassing enough $ is:
1. Spend less than you make
2. Put your savings into a buffer emergency fund + investments
3. Repeat step 1

A real-no brainer right? Well, most people, even myself in my younger and dumber daze (still dumb but not dumber ;P) keep aiming to make more $, yet keep forgetting the basics -

IF Expenses >= Income
...THEN Kaput / Digging a deeper hole

Everyone (and their dog) wants your $ - take a look at the ads everywhere enticing you - "you deserve it" yeah by paying through your nose or spending $ which you don't have (it's called credit).

Thus, as the pix states - know your expenses & control them. How?

1. List down, as much as possible, your yearly expenses by month and category.
This well help you estimate your monthly average expenses & surplus / deficit vs. your income.
For those who are hardworking, you can do is a monthly Cash Flow for the year.

2. Once the above is done, track your actual monthly expenses for at least 6 months and compare your actuals to your estimates.

By virtue of tracking your expenses, you'll be making a concious effort when spending money - "is it worth it?" will zip into your mind automatically sooner or later ;P

This step is critical - without knowing what's your expenses, you'll not be able to estimate how much you need for the all the following areas, even investments.

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