In our previous article, WalletFriend Wisdom Tip #1, we discussed the importance of tracking your spending to determine where were your money spent. So by now, we are sure you did an excellent job tracking your daily expenses.
“What gets measured gets managed.”
– Peter Drucker, Management consultant, educator, author
So congratulations! You have overcome the first hurdle as you have successfully “measured” your expenses and now let’s start managing them.
We briefly shared about budgeting in our previous article and in this article, we will break it down further. Start with organising expenses into spending categories. Break down your expenditure into fixed expenses, such as house rental payments, utilities, communication costs (i.e: phone, internet), school tuition fees and variable expenses, such as food, entertainment, clothing, sports & etc.
Fixed expenses are the things you cannot live without. In other words, these are called financial commitments. On the other hand, variable expenses are things you can change overtime. For instance, having to eat a $30 meal versus $10 meal.
Once you have all your expenses categorised, it’s time to analyse the spending rate for each category. For example, you spend a big chunk of your money on food. Take a closer look and compare each categories to determine the most expensive habit in your life proportionally. Did you spend one third of your salary on an extravagant nasi padang, for example? Or did it go to daily caffeine fix at Starbucks?
Having an honest view of what are the most costly spend in your expenses will help you to decide where you should be cutting back and therefore gain better control of your wallet. Always, remember you have full control of your wallet as long as you know where the money was spent.
Stay tuned for WalletFriend Wisdom Tip #3: Mr. Spending meets Ms. Income.