Saving - Start knowing where your money goes

This is one part of Saving where I will cover some of the changes you can make to start increasing the amount of money you can save which would be the first step in your investing journey, the next part on increasing your income can be found here.

Whether you decide to use a budgeting app or write them on excel or just use a good old-fashioned notebook, keeping track of where your money goes is one of the first steps to starting to save. By knowing where your money is disappearing each month, we would know which are the areas that we can cut down our spending on or avoid completely.

For this, I usually like to group my expenses into 4 groups : Subscriptions, living expenses, enhancements and others

Where does your money go?

(Image source: http://almeganews.com/?p=101)

Subscriptions
These refer to money which is spent every month and in the same amount. So amounts like mortgage payments, car payments, rent, cable and magazine subscriptions, broadband fees, etc. By taking note of these amounts, we can look at whether we really need them. For example, for magazine or newspaper subscriptions that we pay monthly or annually, if we do not need them, we can cancel them and take them off of our expenses completely. This goes for cable subscriptions and app subscriptions (e.g. Spotify) as well

Living Expenses
These are expenses which are needed for daily living that are not fixed, such as food, water and electricity bills, transport, etc. We can then review these expenses and see where we can cut down on them as well. For example, if we find our food bill taking up a large part of our expenses we can try eating out less and cooking at home more often. These are expenses where we should be able to make small cuts daily like saving on that daily cup of coffee, taking less time to shower to save water, don't turn on the air-con, etc, which can make a large impact on our expenses at the end of the month.

Enhancements
This is a special category where costs for improving one's self is placed. Money spent buying books, attending workshops, seminars, etc, would be placed here. This is one category which I am aiming to grow by buying and reading more books, learning from workshops, etc. Going to socialize with people in your industry that may help you in your career in the future would also be counted here. Other costs such as a new computer when your old one is breaking down, which help to improve your productivity should be placed here as well.

(Note: Though this is a self-improvement category, don't put some costs like that gym membership that you hardly use or the magazine subscription that you hardly read here, this should be for expenses that truly help you to develop as a person. Things like a brand new phone when your old one served your purposes don't belong here, no matter how much they "improve your productivity")

Others
This section includes one-time splurges like a new phone or new clothes. Things that are unlikely to continue on in the next month would be placed here. This is where all of the non-essential expenses, that most people usually regret after buying, belong. Unnecessary expenses such as credit card interest, late payment fees would also be placed here as this category is for unnecessary expenses. This is one category where you should definitely cut down. Of course, going on a shopping spree is good (shopping therapy right?) once in a while, but if our others category starts growing at an alarming rate, we need to start cutting down on our unnecessary purchases and using what we have instead.

Summary
Though we may want to declare that our of our new clothes purchases or that latest smartphone is absolutely essential to living or our productivity, but in reality they aren't. This is also why I usually like to ask someone else I trust to look through my expenses to ensure that I'm putting them in the right categories. We tend to look at our own expenses through tinted lenses so best to find a trusted loved one to help us go through our expenses before starting to review them.

Now, let's look at increasing our income.

Any suggestions or questions on my allocation of my expenses, please ask in the comments :)

If you have enjoyed this post and would like to receive notifications on new posts, please subscribe to my blog via email