Tabulating and charting your monthly and annual expenses in each and every category helps to control your expenses. This also reduces the probability of allocating too many dollars to those products and services that are not really important.
If you want to become financially free and wealthy then you must budget your expenses like governments and business all around the world. You must keep track of each and every dollar you earn.
If you can manage to reduce unnecessary expenses then you can divert that money towards buying some appreciating assets (Stocks, bonds, gold, mutual funds, real estate, online properties, etc) which appreciate in its price over time and make you rich and financially free.
Budgeting and accounting are the subjects that are not taught well in our schools and colleges. And that’s why most of the people struggle financially. Both of these skills are important skills to achieve your financial goals.
People who are wealthy today are typically doing both of these exercises for their Business and home every month, for years and till this day to maintain their wealthy state. And they teach their children these 2 basic subjects of money management as well. You should begin to practice these habits early; it does get easier each time because you’ll begin to notice your expenses.
And that’s why their children are more financially independent than the children of high income but low net worth group of people (Upper Middle Class).
What are your Financial Goals?
If you ask a typical upper middle class person (I am talking about High Income, low net worth group of people) about their financial goals, most of the people will tell you the following.
- Minimize the Tax burden by taking large mortgage loans
This is the prime financial goal of people living in USA and worldwide. They think that taking larger mortgage loans is a smart idea. Because it will reduce your tax liabilities and thus, you will save on the tax.
One of my friends has recently taken a large mortgage loan to save on taxes. But according to me, if he would just budget his household’s monthly finances then he will easily save more money rather than saving on taxes every year.
Most of the people focus on larger things. But they don’t focus on the smaller expenses. If you deduct few of your small expenses every year then you will save much more money than your interest payment on your home mortgage (Only Interest payments on mortgage loans are Tax free).
What I advise people do every month, is to sit down with your spouse or family and write down each and every category’s expenses on a paper. Make category for each and every expense and write down expected spending in front of each category and compare that with actual expenses.