The Simple Wealth

Awakening financially

After the small fortune of $100,000 dollars disappeared in three years, the shock prompted me to track our expenses and income. The action of tracking expenses and income gave me tremendous awareness to my financial situation. It’s almost like awakening financially and things start changing in that very moment. This is the foremost important step to make to get rich, and yet very simple to do.

First, make the monthly expenses into categories, such as housing, grocery, dining out, preschool, gasoline, utilities, telephone and cell phone, TV, internet, credit card debt repayment, cash on hand, clothing. Add up the numbers.

Second, make the yearly expenses into categories, such as auto insurance, property taxes, homeowner property insurance, auto maintenance, medical payment, travel, membership, gifts. Add up the numbers, and divide by 12. ( Or do not divide by 12, just do an yearly balance sheet.)

Third, figure out your monthly after tax income.

Then, with the above numbers, do a monthly cash flow statement. Prepare to be shocked.

Make it your most important new habit

The math is simple, the hard part is tracking your spending and making it your most important new habit. But it is actually not that hard. You just need to have a method. And once you do your first cash flow statement, the shock will give you strength to continue tracking your spending. If you see the importance of doing it, you will do it. It is not how much you make but how much you keep that matters. Usually we know how much we make but don’t know how much we have left, or we know there is nothing left after paying bills, or we know credit card debt is climbing up, but don’t know exactly what happened. We don’t know the numbers. We don’t know how much we spend in eating out. We don’t know how much we spend in groceries, or in coffee shop, or in entertainment.

The tracking method

You can use computer software, such as Excel, Quicken, Money, or QuickBooks and set up the categories that apply to you. You can also just use a simple ledger you can get from an office supplies store. Each time you buy something in store, keep the receipts in the same place in your purse or billfold, and empty it and record them daily or weekly or biweekly or monthly. If you shop online, print out the receipt and keep in one folder or shoe box, and empty it and record them daily or weekly or biweekly or monthly. Toss away the receipts you don’t need anymore, but keep those you may need for exchange or return or tax purpose. Each time you pay a bill, write down the date and the amount and keep it in the same place with receipts to be recorded. The big advantage of using a computer software is you can have your statement in a couple of clicks and you can do it as often as you like. Every time you put in some numbers, you can run a new report.

I use QuickBooks myself. I used to do my bookkeeping monthly, and now I do it almost right away or every few days. The shorter the time frame, the easier it is to do it. And also you will be more alert to note mis charges or fraudulent activities. I just noticed a strange charge on my credit card statement, and I called the merchant, and found out that somehow I signed up for shipping club membership and charged once last year, which I was not aware of, and now it’s auto-renewed and I was charged again. If I have not kept a close eye on my spending and not spot the problem, I will be charged annually forever for a service I don’t need.

Mindful living in all aspects V.S Mindless living financially

If you are one of those people who naturally live under their means effortlessly, you may not need to track your spending. But most people live above their means, no matter how much money they make, they easily manage to spend more than that. Some people don’t like to track their spending, because they want to live a life that they can spend on whatever they like, and that’s the main reason they want to be rich. To live a life limiting themselves in spending now in order to have a life without limits in spending later doesn’t sound good to them. They want it now. This point of view shows either too much materialism or preference of mindless living financially. The truth is even a millionaire needs to live under his or her means, otherwise he or she can go broke too.

Step 2: Cut Expenses

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