Now this may seem obvious to you, but as a society, we have been taught and actually encouraged to spend every penny we make, to get it now and pay for it later, and to live beyond our means. What ends up happening is that we find ourselves living paycheck to paycheck or client to client and these habits are destroying any chance we might have for financial freedom and financial peace.

So what is the solution you might ask? The solution is to create a clear picture of how much is coming in for the full year and how much is going out.

You do this with three simple steps:

1. Your first goal is to see where your money is going today. You can do this by listing every one of your expenses for a full year.

Remember, some of your expenses like car payments and utilities are monthly, others like auto insurance or the water bill might be quarterly, and then others like property taxes and insurance might be semi annually or annually.

Take this total for the full year, then divide it by 12 and this will give you how much you spend every month.

Now be sure to track your pocket money and go through your credit card statements to make sure you get everything.

2. Take the amount you make every month (after taxes) and subtract this figure. What do you see?

Is there money left over?

If there is extra, then that’s fabulous, because next week, I will show you what to do with it. Yay!

If it’s negative, then what do you think is going on here? You are probably spending more than you make and going into debt. Do you have credit card debt? This should be a wakeup call and the message is to “stop spending more than you make”.

3. Go back through your list of expenses and put a plus mark by everything that is absolutely crucial and everything that raises your self-worth. Then you want to see what areas you might be able to eliminate to increase your bottom line.

Yes, just a like a business, you want to increase your bottom line.

So this week, just work on this one area to get really clear about where you stand. What is coming in and what is going out.

The secret will be to spend less than you make while living a rich and rewarding life and over the next few weeks, I will be sharing more and more ways to do just this.

You are welcome to use the “Expense Tracking Worksheet” that I have attached at the end of this blog to see where your money is going today.

Your ultimate goal is to create a healthy bottom line – meaning you have money left over at the end of the month. Having money left over at the end of the month means you are spending less than you make which is the first step to creating wealth.

Next week, we will talk about “How to pay yourself first.”

In the meantime, if you have any questions for me or any comments, please post them below and I answer them

Please share these tips with your friends. I believe in you and I want to see you have a rich and rewarding life. So do this assignment, and I will see you next week for our next Smart Money Tip!

Smart Money Tip #5 Worksheet