Where Does All The Money Go? – Part 1

We've all had the feeling, and asked ourselves the questions:

• I just got paid, so how is all my money is already spent?
• Why do my credit card balances just keep growing?
• Why am I spending so much on credit card interest?
• Can I ever get out of debt?

Many people believe the solution is either more income (raise, spouse work, side hustle, part-time job), lower taxes, maybe more creative borrowing with lower interest credit cards, a debt consolidation loan, or even going so far as to file bankruptcy to renegotiate debt. Unfortunately, all of these "solutions" only prolong the problem over a lifetime, and never solve the real money issue.

There is hope, but it requires a change in behavior, which many people never do. The problem is never not enough money, nor more income, as even highly paid sports stars, celebrities and executives can easily accumulate too much debt.

The problem relates to our spending habits. Until we have a solid grasp on how much we are spending and why we are spending, there will never be enough money. Reducing spending money is very similar to losing extra body weight. Until we get serious about knowing what we are eating in terms of the quantity of calories, how often we are eating, and are willing to do some moderate exercise on a regular basis, we will never see a reduction in our weight.

Some will advise a harsh budget, where every activity is limited and when the money for the day is spent, you stop spending until the next day. While this method may be effective for a few days, you quickly feel unsatisfied, and soon return to the previous habits of spending. Without viewing spending as part of a larger financial plan/goal, no spending budget will be followed.

The word "budget" generates strong negative feelings for many, as it implies restriction or being told "no" regarding spending. But a good budget is merely a spending guideline — a part of a much larger set of goals.

However, before establishing a spending budget, you must set out a roadmap of the general direction of where you want to be over a period of many years, also known as setting goals. This is individual to every person, but can include goals on education, career, family, where to live, and even a look ahead to retirement. Although these goals will be general and subject to change as life unfolds over time, they define a path that helps avoid distractions along the way that will soak up a lot of your money.

In addition to setting long term goals, and before actually developing a spending plan it is vital to first collect information about how much you are spending and what you are spending it on right now. It is amazing how quickly all the "little" everyday things can add up quickly to very large amounts. By having an idea what you are currently spending, it becomes easier to set and keep reasonable goals for everyday spending in the future. You do not need to go out and buy a special notebook or app, or spend money on financial software to keep track of spending. Simply using a pocket sized calendar book or a Notes app on your smartphone work very well. The key is to write down every amount spent, and what it was for. This is the hardest part — getting into the habit of noting every single amount spent. Once you have done that for a week or two, you will be ready for the next part of developing a spending budget.

Continued in Part 2