One of the most common personal finance tips is to keep track of spending. It is logical: it helps you to know where your money is going and how you spend it. It gives you valuable information about yourself and your spending habits.
But it’s just that. The past tells you: what you already spent. If it got out of hand, there’s no way to fix it.
In this sense, the recording of expenses by itself is of little use to you if you do not accompany it with other tools that help you make good decisions a priori, that is, before making your purchases. If you don’t have a method. There are many, but the one that works best is undoubtedly the spending plan that we have talked about here on several occasions.
In fact, to control your money, you need to do both. Plan how you are going to spend it, but also keep track of it so you can know how you are doing. This way you will know what you can do when things do not go as planned and how you can adapt that plan.
Remember that the spending plan is not set in stone. On the contrary: it is flexible and you can modify it on the fly to adapt it to reality. By recording your expenses you have the information you need to make better decisions. To redirect your money towards your new priorities, if you need it. And so you can maintain control.
This is an example that I really like to give: you made your spending plan last week and suddenly the concert of your favorite band is announced and you are dying to go. What do you have to do then? Look at your plan and see how you adjust it. What expenses can you put off, or do you have to sacrifice in order to buy the tickets?
Lots of people just buy them and go. Some use their card and get into debt. But they don’t change their plan and that’s why they always end up overspending or losing control. Even if they record the expense.
Remember: earn a lot or earn little, the income is limited. Is finite. This means that you cannot buy everything you want. They are for each other. The way to stay in control is to make precise adjustments on the spot. In the example that concerns us, before buying those tickets you have to see what other expenses you would have to cut to reach you.
Taking control of your money is as simple as:
1.Tell each peso you earn what it has to do for you. That is to say: you give the orders. This is accomplished with the spending plan. Every time you receive an income, you sit down and ask a simple question: What do I need this money to do for me, before I get paid again? Thus, you assign your income to the different categories of spending: this is for me, this is for rent, this is for electricity, this is for the supermarket, etc.
2.Supervise that your orders are fulfilled. The expense record helps you, but as we have already seen, it is not enough. When things change, you have to act accordingly and adjust your plan. Reassign the various jobs you gave your money to accommodate new needs. For example: the electricity bill is more expensive than you thought and than you had planned. You will have to reduce what you planned to spend in another category, to cover that remainder. So you don’t lose control.
