Thursday, October 18, 2012

Principle #2: When you track your money, you control it.

Have you ever taken your car for a tune-up and received a test result form similar to the one on page 35? The value of this kind of analysis is that it allows you to visualize exactly how your money was spent in getting your car tuned up. Without it, the only thing you may know when you pay the mechanic is that $75, for example, seems like too much. Or you may not even consider what the $75 was worth to you at all without something to verify the value of that expenditure. Having a clear picture of exactly where you spend your money is extremely important in today’s consumer-driven society. The constant bar- rage of emotional media messages often lures us into spending more money than we have. That’s why it is more crucial than ever that you learn the value of keeping track of where and how you spend your income. When you fail to do so, you can easily consume every penny you earn on impulse and without any real awareness. 

Tom and Shannon* are a perfect example of this. Shannon liked music and was a member of a club that offered discounts on CD's purchased through its mail order catalog. Shannon bought multiple CD's in order to take advantage of what she thought were cost savings. Tom was into computers and thought nothing of buying himself a new video game every week to play on his PC. Neither Tom nor Shannon tracked these expenditures and were often overdrawn in their checking account because of them. Shannon decided to take money from their savings account to cover the bounced checks she had written, but she didn’t tell Tom. In turn, Tom decided he would dip into their savings to bail himself out of all his overdraft fees but didn’t know Shannon had already used all their savings to cover her problems. Because they didn’t keep track of how they were both spending money, Tom and Shannon had not only overdrawn their checking account, but had devoured all their savings as well. As we mentioned in the introduction, many Americans today are av- idly pursuing their every want with the expectation that somehow it will be fulfilled. Individuals who had parents that satisfied each childhood desire often grow up expecting that they can continue to have every- thing they want as adults. Even with the knowledge that the money sup- ply is not endless, some people continue to spend as though their decisions will have no consequence. It is not until a person learns to track his money that he begins to see that all spending decisions have repercussions. Remember the Haywoods who enjoyed frequenting All-a-Dollar? Once they began keeping track of how much they were actually spend- ing at the bargain store, they were shocked to discover they were wasting $300 each month. Consider this statement by George Clason from the book The Richest Man in Babylon: “Learn to live on 90 percent of your income.” In today’s consumer-driven society, is it feasible to spend less than 100 percent of what you earn so that you can have a surplus for the future? It is, even for those who have become accustomed to devouring every penny they earn and living on credit. We have seen countless individuals do it, but they first learned how to track how much money they spent so they could contain that spending where necessary. Multimillion-dollar sports associations know the value of tracking. 

The NBA, the NFL, and other organizations keep very close track of each athlete’s playing statistics so that when it comes time to trade or negotiate contracts, they will know the value of that player. They also keep track of player statistics and make them known to the public to heighten awareness. This awareness creates interest, which in turn creates profits. A system of tracking is vital to any big corporation that wants to stay in business. Consider the example of a California-based computer hard disc drive manufacturer that was notorious for not keeping track of its inventory. The company constantly had problems filling orders and usually took an aver- age of three weeks to find parts in order to ship products to its customers. The company’s distributor got tired of waiting such long periods and went to a competing supplier. The business lost $12,000 and the distributor never came back. How big was this company’s actual loss? In reality, its damages were much greater than $12,000 because it lost a valuable distributor who took his business to the competition. And what about the IRS? Collecting taxes is a nasty business and without a system for collecting those funds the government knows it wouldn’t stand a chance. That’s why taxes are taken directly out of payroll so that no one cheats the system. Without your own system for tracking your finances, you could be cheating yourself out of valuable money or be cheated by others. “But,” you may find yourself saying, “I really detest keeping track of the way I spend my money. It seems so tedious!” We have found over the years that most people want to get on the road to financial control but initially hate being “restricted” when it comes to tracking money, so they play emotional games with themselves. Have you ever played any of the following games with yourself? 

 Game #1: Avoid balancing your checkbook monthly. 
Many of our clients have expressed to us that they simply don’t want to know how far out of control they are or how bad things have actually become. Fear and guilt are often the reasons for this stubbornness. In fact, one of our clients was so overwhelmed by the thought of balancing her checkbook that she simply opened a new account every six months. 

Game #2: Blame employers or others, and/or think you are not making enough income. 
Many people trick themselves into thinking that their overspending and debt load should be blamed on their jobs and/or their employers. These people convince themselves that true financial happiness can only be found in a larger salary. They assure themselves that pastures are greener elsewhere, and incur further expenses when they change jobs, uproot their families, and move across the country. Remember, it matters not how much you make, only how well you manage money that counts. Even major league athletes who have not yet learned to track their spending think they don’t make enough to support themselves. The Associated Press, reporting on the National Basketball Association’s 1998 labor strike, quoted Jazz player Greg Foster as saying, “It hurts missing a paycheck— especially for a guy like me,” who was scheduled to make more than $500,000 in 1998. After missing close to 30 games due to the strike, Foster and other NBA players felt they just couldn’t make ends meet. “I mean, I’m not Patrick Ewing or one of those guys who gets the big bucks. I need every penny.”1 

Game #3: Claim that you never dreamed anything could go wrong when emergencies hit. 
This is the ultimate gaming strategy, which transfers every bit of personal responsibility onto a “natural disaster” that you couldn’t possibly foresee. We counsel with hundreds of clients who have no idea where the money goes each month and yet cannot see the correlation between this lack of tracking and the total devastation that a basic emergency can bring to their family. One of our clients mysteriously lost her hard contact lenses, which would have cost her approximately $350 to replace. However, because she did not want to feel restricted, she had not tracked her money and there- fore could not find the extra funds to purchase new lenses. This small amount of money put her into a state of total financial and emotional panic. At the outset, tracking your money and how it’s spent may appear tedious and restrictive. But we know from years of helping people gain control of their finances that it’s actually wonderfully rewarding.

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