Step #1 To Getting Rich: Know What You Spend

5 comments — written on August 18th, 2004

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%.