I believe many people have had same experience with me, recording own expenses for 1 to 2 months and then felt that it did not help to save any money. I made many attempts to do it, in fact it only made me feeling bad knowing I had spent on something (when I recorded them down, it just reminded me I should feel guilty)
Recording own expenses will become meaningless if we only record for the sake of recording. It has never been made for this purpose. I have been curious about how much it can benefit me, if so many successful people are doing it, then I assumed there must be something great about it. I read a book about it (his blog – in Chinese)
I decided to make one last attempt to record my expense but this time I will implement what I have learned from the book.
My target is eventually I am able to allocate my money to the right expenses (I also wanted to apply what I have learned from “Rich Dad, Poor Dad”), at the same time to be able to fully understand how much I have saved and spent each month.
1) I recorded as detailed as possible on my daily expenses, each expense for 3 months
2) Each end of month, I spend around 10 minutes to understand what usually I spent my money on, 3rd month I did a more thorough study
3) After I understand how much I spent each month for each expenses and I realized I could categorize my expenses to ‘fixed expenses’ – fixed expenses are such as my room rental, my monthly fund to my dad, my phone bill, and the rest are expenses which could vary based on how I spend them. It is then time to start making a budget for your monthly expense. Budget how much you will earn monthly (amount which you earn from your fixed job and also any side income you will get from that month), and allocate them to each categories* of your expenses
4) Here come the most important part, how much of my income should I budget in, and in which category. Here is when I apply Robert’s teaching: Pay yourself first. The first allocation of the money you earn, you should spend it for yourself and not to pay for any other expenses. That allocated sum of your money is for you to buy asset, and not to spend on buying liability (liability here including buying a house, or a car), I did as per how it teaches
5) When I got not enough money for other expenses (because I pay myself first), I look for money, and I cut the expenses. This was my last step, which was to carefully study my expenses, then I realized which category I could actually cut down my budget to spend on. I found it especially helpful when I fix those budget, I have the number in mind how much I could spend on those expense categories. Though I still always spent over my budget, I managed to learn from it end of each month, and it acts as a reminder for myself what I should not do in next month, I am more alert. It also keeps motivating me to try to have second income
*Here are my 5 categories to where I would allocate my money to, and the percentage of your income (remember it has to be your net income, which is after the tax amount) will be according to each person’s expenses
(1) Pay for yourself category (you use this money to buy assets only)
(2) Self development (there is no other better investment than to invest on yourself, so I look very much into this, I read a lot, so most of my money from the budget is spent on buying books, and to pay for course I take)
(3) Long term planning category (this should be where you save them for usage such as for a vacation/emergency fund when you are needed to suddenly fork out a money for yourself or your family members)
(4) Daily expenses category (this is for the fixed and unfixed expenses)
(5) Entertainment category (a certain amount for entertainment is especially important or I will find saving/cutting cost so difficult that I will quit doing it, I budgeted a sum of my income to this category so that things will balance up and I will find it rewarding and will keep myself going on, of course, it has to be aligned to my personal goals – I do not want to reward myself which will make me pick up my bad habits)
I finally found the benefits of recording my expenses. It gives me a sense of mindfulness. I know where my money are, and will not feel bad or insecure when I suddenly need to spend on something big amount, because I have already budgeted the expenses, even when I want to go for a vacation, I know I have budget an amount for it so I can go with ease. As a minimalist, it especially helpful, I cut down a lot of unnecessary worries.