Robert G. Allen on Money Management
The Money Tracker -
Examine your MoneyTracker. Fill in your name and phone number in the appropriate place. Notice one side of the MoneyTracker has three columns with the headings "Check Register," "Cash Record," and "Credit Card Balance." The other side contains various categories such as "Charity," "Taxes," "Household," etc. With this simple sheet you are going to gain control of your finances once and for all. This may sound like a bold statement but it's true. The MoneyTracker will get you in control of your finances in a few short weeks.
To better understand how you spend money, let's examine a money transaction or a money event. How many times a day do you spend money? 5 times? Ten times? Rarely more.
Think of it. You only spend money a few times a day. And yet, those few decisions make all of the difference between poverty and wealth. Actually, the millionaire spends approximately one minute more per money event than the poor person. And that one minute makes a huge difference. Let's explore what I call the Millionaire's Minute.
Average people go to the grocery store to some bread. They are in a rush, running late. They quickly wander the aisles looking for the bread and grab the bread quickly without comparing prices. While they're waiting in the check out stand they see a few impulse items they pick up. They pay for the items but don't record the event because other people are waiting in line and besides, they're running late. They rush off "a day late and a dollar short."
The millionaire does a few extra steps that take less than a minute. First of all, before he enters the store he decides only to buy the planned item and nothing else. Life is full of things to buy. He can't allow his impulses to derail his decisions or to control his life. Then, he spends a few extra seconds to compare prices and to pick the best value. If appropriate, he locates a sales clerk and asks if there is a possibility of obtaining a discount in price. He makes a quick mental calculation of his savings. This makes him feel good. Then, he takes the item to the check out stand. Once again, he is not sidetracked by impulse buying. He selects one of the three methods of payment: cash, credit card or check. He exchanges the money for the items. He collects his receipt, examines it for accuracy and puts it in his wallet for filing later. Then, he makes the most important step...he records the event by writing down his purchase, determining which category of spending it was made in, calculates the remaining balance in his account and his targeted spending. Later, at home that day, he files the receipt in a well-organized manner for easy retrieval.
All told, on average, the millionaire spends about an extra minute per transaction than the poor person. But look at the savings in time and money. The millionaire saves from 10-20% in comparison shopping. This makes a huge difference. (What if you could lower your annual spending by 20% without a lot of sacrifice?) Then, by investing an extra minute to record the transaction and to file it properly, he has at his fingertips a vast source of information. He knows his current account balances. He can compare his spending to previous months and notice trends. He is more aware of his actual spending which gives him much greater control of his finances. He can calculate his tax consequences in minutes not days. He can back up his tax decisions with instant documentation. In a case of dispute, he knows where, when and how he spent his money and has the receipt to prove it. He is in control. And the resulting peace of mind creates a feeling of power. This increases his confidence, creativity and judgment. He makes fast, correct, decisive decisions. This gives him that secret millionaire's advantage.
And you can do all of this too by just learning how to use your MoneyTracker. Whenever you spend money from now on, cash, check or credit card, you will record it on your MoneyTracker. I want you to have all of your financial life funneled through one place so you can see every dime you spend with one glance. Examine a MoneyTracker right now. Notice the column marked Check Register. Whenever you write a check use the organizer to record the date, the check #, who you wrote the check to and the amount on the first line of each transaction. On the second line there is a place to record the category, the reason for the purchase and the balance remaining in your account after the purchase. Most of this should be familiar to you if you are using a regular checking account and have developed the habit of balancing your checkbook after each transaction. The only box which may be new to you is "Category." Every time you spend money you must categorize how you spent it. On the back side of the MoneyTracker is a listing of ten spending categories; charity, savings, taxes, shelter, household, auto, fun, insurance, debt/misc. and business. Each category is given a number from 10 to 100 as explained in Chapter 2 of Multiple Streams of Income. These categories are self explanatory. If you buy groceries, which is a household expense, you would categorize the transaction with the number 50. If you buy gas, category 60. If you put money in savings, category 20. If you buy something for your business, category 100. Each time you record a check, you must decide under which category to record the transaction. You place the number of the category in the small box marked "Category" on the second line of each Check Register money event. Then, turn the sheet over and re-enter the transaction under its proper category. There is a similar process when you are using cash or a credit card.
For example, suppose you paid $20 by check for a pizza and drinks for your family. As you pay for the meal, you record the transaction under the Check Register. You categorize the transaction as 70 (Fun-Entertainment) and turn the organizer over and under the 70 Fun-Entertainment column you record the date, mark whether you paid by Check (Ck) Cash ($) or Credit card (Cr), then to whom you wrote the check and the amount. If you buy a pair of shoes for $90 using your credit card, you record the event, categorize it as 50 (Household) and add the amount to your credit card balance....which is the money you will owe when your statement arrives. Then, you turn the sheet over and add the transaction to the column 50 Household. It's that simple. If you receive a paycheck for deposit into your checking account, the process is also the same. The category is "Income" and on the back side of the form (top left) you will find a place to record your monthly income under the category "Income Faucets."
You'll notice there is a place marked "Target" at the top of the right hand column under each Category. This is for you to make a rough guess of how much you spend each month in this category. This is not a budget. Only a rough guess. At the end of the month, you will total up your expenditures or income in each column and compare the total to your Target goal for that category. Then, set a new goal or target for the next month. In the bottom right hand corner is a place for your End of the Month Cash Flow Summary where you deduct your total expenses from your total income to see if you have a surplus or a deficit that month. If there is a deficit, your spending is out of control and you are either liquidating your assets to support your lifestyle or you are going further into debt.
At the end of each month, you file your completed MoneyTracker in your Home Office filing system and replace it with a new one to start your month.
The bottom line of this exercise is to get you in the habit of knowing your check, cash and credit card balances at all times. With one glance at your organizer, you should be able to determine your exact financial condition.
You may have other ways of tracking your expenses, such a computer program like Quicken, but I encourage you to use the MoneyTracker for at least 30 days to physically process the money through your life. This will give you a greater awareness of how money is flowing through your life and where. It will fine tune your handling of money. Then, you can return to your normal method of cash flow tracking if you wish. Once every few months, it's a good idea to use the MoneyTracker for a month to monitor your expenditures.
Good luck.
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