May 2, 2008

Building Wealth | Personal Finance | Tracking Expenses

Tracking Your Expenses the First Step Toward Building Wealth.

There is an old saying out there that goes something like, "you can't know where you're going if you don't know where you've been." This adage applies to many things: career; love; family; life; and, believe it or not, finances. So often in our lives we have dreams of wealth and happiness and early retirement, but we never seem to reach those goals. One of the primary reasons for this is that so much of our money slips through the cracks. Money that in the end could be used to buy that new car you want, pay off that credit card debt, or invest in that IRA so you can retire early.

Perosnal finance and building wealth begins with one very simple idea: you must bring in more money every month than you spend. If you do not, it will be impossible to build the wealth you need to retire, to accrue the compound earnings necessary to live the good life, and to live without having to worry about paying the bills every month.

I'm sure that you believe me that knowing what comes in and out every month is important to your personal finances, but you probably have no idea how to get started. Starting is simple. It is maintaining your data over the long hall that I have found to be the hardest thing to do.

To track what you spend (tracking what you make is usually fairly easy), the easiest thing to do is set up a spreadsheet. I use one sheet per month, and label each row with a category that I want to track. When you first begin, you may not have that many categories. That is okay. As you discover a category you can add it in for that month. Right now I have the following categories: fast food; dining out; booze; miscellaneous; bills; gas; and groceries. I think the more precise you are with your categories, the easier it will be to see what you can minimize to increase your savings potential.

I'd label each spreadsheet something like Personal Finance - Building Wealth - May, to give you a reminder of where you want to go each month. Then at the bottom of each tab I set it up to add everything up. So, for instance, you can instantly know what you've spent on groceries for the month. I then have a final tab that adds everything up so I can know exactly how much I've spent.

Once you have these numbers you are on your way to building wealth and retiring early. Armed with these figures, you can begin to tweak your lifestyle to shave some of those wasted dollars off your monthly expenses and put them where they are more beneficial.

I'll keep you up to tabs on my monthly numbers so we can all experience the journey that is personal finance, building wealth, and retiring early together. Implementing this into your life will help you get where you're going, because you will know where you've been.

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