This is a guest post from Pauline of InvestmentZen.com
I always thought the name of this site was a clever word play between Kim’s optometric career and her interest in personal finance. But the message goes further than that. You need to keep your eyes on your dollars or they will disappear before you know it!
I am a bad example when it comes to tracking every penny, but once in a while, I will have that “spring cleaning” moment, where I scrutinize every line of my online banking statement to look for occurrences where my money disappeared without me noticing. Last week was one such week.
I had been home, in Guatemala, for less than 10 days. Yet I noticed I had taken over $1,000 in cash out of my account. While I don’t know how much I spend exactly while I am there, $3,000 a month is far from it. Where did the money go? Well, there were a few expenses to fix my guest house after we had a hurricane damage things. There was a vet bill because a neighbor shot my dog. Yes, it was an eventful week. But after that, the rest was pretty much unaccounted for. It took me a while to make sense of the whole thing, and find a couple of expenses that could have been avoided, with better planning. Not challenging the status quo can lead to overspending.
Most of the time, I feel like I have my finances in check. I fill up my investment accounts, savings accounts and other tax free accounts religiously at the beginning of the month. My side businesses bring in extra money to pay for the occasional whims. But does that make it optimal money management? Of course not. For as much as I pat myself in the back for having a net worth way above that of the average American household, there is always a way to be more efficient with money.
One of the things I like to do, is make most of my money disappear at the beginning of the month. Once my mortgage and bills are paid, I can charge the rest of my expenses on my credit card and pay it off in full the following month. In the meanwhile, my money is invested or earning interest in savings. Psychologically, because it is not on my account, I feel like there isn’t much to spend.
Having cash is another thing I try to avoid. I am pretty messy, and often find bills in my pockets before I do laundry. Who knows how many bills fell on the floor or disappeared when I created too big a temptation for someone to grab them? Sadly, in Guatemala, I don’t have much of a choice. Most shops won’t accept credit card payments, and if they do, they’ll charge you 5% extra for the privilege. Cash it is. So I try to keep a closer eye on my cash. I count it at night, tallying what I spent during the day, and making sure it adds up. In the States, it is pretty easy to go cashless. Even better, if you use an app to track your spending, everything you charge will be neatly organize, and you will be able to see in just a few clicks where you did well and where you spent too much.
While I am not a fan of budgeting, because I find it too strict in comparison to real life (I mean, you overspend $2 on clothes then underspend $2 on groceries, who cares?), keeping a close eye on your spending can help you become a better saver. If you cringe every time you see that $75 phone bill, you will start shopping around for a better deal sooner than later. If you realize food takes a whopping $500 out of your pocket each month, you’ll start to meal plan. It is not until you see the actual numbers that you will realize what your spending really looks like.
And all that money you will save by being more careful will help you grow your nest egg and become financially fit.