By now, you are well on your way to improving your finances and closer to creating a lifestyle that you desire. Before you get too excited, the next step is the most crucial step of the entire process.
To recap, in step 1, you learned to get clarity of your current financial situation. In step 2, you learned to determine if your income is allocated appropriately to your expenses. Although this next step is the most crucial, it is also the most disregarded part of improving your finances. When it comes to this next step, you will find that people avoid it like the plague. People will come up with every reason they can to excuse them of completing this step. Unfortunately, avoiding this step will make improving your finances impossible.
The next step of improving your finances is tracking your activity. I can sense your hesitation. If I haven't stressed this enough, I must say it again. Tracking your activity, starting with the breakfast sandwich or the cup of coffee all the way down to the pack of gum, will be key in turning around your financial situation. Tracking your activity is how you identify your spending habits to allow you to gain control of where your money is going.
Tracking your activity doesn't have to be difficult. It can be as easy as using a small note pad to jot down the item and price of every purchase. However, if you use the tracking sheets that correspond to the lifestyle categories that were mentioned in step 2, you will find it easier to tally your activity and have an accurate account for your spending. Here are sample tracking sheets that are used in the Financial Lifestyle Management System:
Tracking your activity using a note pad or tracking sheets is especially necessary when you are using cash for purchases. We all know how fast cash can disappear. Once you break a bill, whether it's $100, $50, $20 or so on, the remaining change is quickly spent on items unknown. All items need to be accounted for to help you determine your spending habits.
If you use a card, debit or credit, for your purchases, use your statements as reference for your activity. Take the entries from the statements and separate the activities into the five lifestyle categories, mentioned in step 2. For instance, your gas purchases from last week, over the weekend and then again today, must be listed in the transportation lifestyle category. Another example, your latte purchases from Monday through Friday for every week this month, must be listed in the life lifestyle category.
Tracking your activity as accurately as possible is key to understanding your spending habits. As most people are visual learners, actually seeing exactly where you are spending as well as how often you are spending will bring awareness to negative habits. For latte lovers, if you spend $5.60 on a cup every weekday morning, at the end of the month you would have spent $112. What if there are one or two other items that share that same pattern, like a muffin with your latte and then the daily special for lunch? You at least are spending $336 on possibly unnecessary items. Could that $336 be allocated for something more beneficial, let's say...maybe your savings?
Since you are well on your way by implementing steps 1 and 2, do not let step 3 be the reason you stay in your current financial situation. Include this step of tracking your activity and you will improve your finances as soon as by the end of this month.