Step #1 To Getting Rich: Know What You Spend

5 Comments

How much did you spend on food last month? What percentage of your monthly expenditures is on transportation? Where did all that money you withdrew last week go?

I know, I know. Not as sexy as arbitraging distressed securities and trading like those cool guys on TV.

The first step to making money is knowing where you spend it. Once you know where your money is going, you can budget and control it.

So how do you track your spending? Get a simple program like MS Money or Quicken. They’ll automatically create reports and charts for you to understand your spending. They’ll even automatically download your bank data for you.

Use credit cards or debit cards, which will make it easy for the programs to track your spending. For cash purchases, save your receipts and enter them in religiously.

Do this for 3 months. I guarantee you’ll be blown away by your spending. Then cut your budget with reckless abandon. At minimum, cut 10% of your spending starting that day.

Cool tip: I’ve taught my personal-finance class to over 150 students. Many of them took this first step and every single one of them cut their budget by at least 10%. One student cut his budget by 60%.

Now what?

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5 Comments

 
  1. For an online budgeting software that’s more basic than quicken or ms money but a lot better-looking and easier to use, check out the budgeting software at http://www.moneypants.com.

  2. Ramit,

    Love the website! I think starting about free software to accommodate finance tracking, I started looking at SourceForge and found SimpleD Budget (http://sourceforge.net/projects/dsbudget)
    it also provides the same functionality as MS Money.

  3. I think I’ll add my two cents for those with Alternative operating systems, like Linux or Mac OS X: GnuCash makes an excellent finance tracking system.

    http://www.gnucash.org

  4. The simpleD budget is much to my liking. It is simple budget system that is good for retired people with out a large portfolio. I can print the pages jhowever,the print is very small and almost readable. Any suggestions from the group on how I can enlarage the copy to be able to print.??

  5. All,

    For anyone with an online Bank of America account, they have this type of feature included that can track expenditures and provides all kinds of Pie Charts/Graphs that display your spending habits. For the most part it is almost automatic everytime you swipe your card, although sometimes BOA can not account all your expenditures in which you must manually alter what the expenditure was for. After you set this up it keeps a history from the time you opened your account (and yes you can view specific time periods). You can also tie in all your other financial accounts (mortgage, car loans, credit cards, student loans, etc.) and BOA will calculate your net worth. Awesome tool, if you have it,k use it!