Yee-haw! Onward to part 2. Let’s find out why indeed tracking all that action from part 1 is truly important. We’re going to learn how to organise that spending information.

Now that we are in the habit of recording our spending (or giving it a shot), we can transition this to a more complete understanding of our living needs.

Organise your spending into three categories:

After about three or four months of record-keeping, we should have a good visual of our spending habits. Utilising the data, we need to herd the bucks into three different categories of spending. Firstly, which of the expenses were necessary for well-being. These would be rent/mortgage, groceries, utilities, phone bill, dentist, toiletries, fuel, etc. Secondly, which expenses are reoccurring at a stable rate throughout these months. These would again be rent/mortgage, phone bill, groceries, but, likely a few different things fall into here including memberships (gym, yoga, website, etc.), subscriptions, and so on. The final corral is filled with the remaining things we bought; they did not fit into essentials or reoccurring fixed costs. Items like an Uber ride, eating out, parking fees, alcohol, new clothes, gifts for yourself, impulse buys, coffee, etc. for example.

What do we notice as a result? We have a list of the expenses that are important to our lives, a list of ones that we know will be coming up every month or week that are predictable, and, of course, a list of items that we spent money on without needing to.

Add up the totals across these categories; what does your lifestyle cost?

Firstly, the reoccurring expenses are important. What we want to do is organise the spending into a monthly breakdown of our costs so that we can begin strategy for our financial future. Tally up the costs of items we presently have charging us every month/week, and see what that total is.

Is it alarming?

Secondly, let’s add up all those irregular necessities: oil changes/car maintenance, dentist visits, household items, personal items. For the sake of a monthly outlook, we can take that total and divide by twelve — this is on average what we can expect to dish out on a monthly basis for surprise essentials.

Thirdly, we add our monthly reoccurring cost total with our monthly average of irregular necessity cost. This is accordingly the monthly base lifestyle cost that our lifestyle is maintained by. The lower it is, the more flexibility we have in case of emergency, or for pleasure, or for ramping up our savings.

Furthermore, we all should have a good estimate of the money we will be making each month. On the other hand, if we don’t have a steady income stream, we can average out our income to find the monthly equivalent.

Is your net worth growing?

Finally, we will evaluate the difference between our monthly income and our monthly base lifestyle cost. Monthly Profit = income – base lifestyle cost.

Please have a positive balance here. Otherwise, major changes need to be made to our lifestyle ASAP*. The more debt we let ooze in, the faster and stronger it infects our bucks.

Additionally, we want to find out what percentage of our income is being used to pay for these living expenses. All it takes is (base monthly cost / monthly income) * 100. This will give the spending percentage.

Hence, the spending percentage is what amount of our hard-earned income we are losing towards our living expenses. Likewise, the other side of this is the margin we could be saving of our income to grow more wealthy! If 60% of our income is going towards our cost of living, that means we thus have the potential to save 40% to grow in investments!! We want this savings percentage to be as high as possible because the more we stash away now in investments, the more time it has to compound and swell our net worth.

So, what percentage did we each find?

When we take the total spending of each month that we’ve actually tracked, do we find similar results? Or are there a lot of counterproductive purchases that bloat our expenses outside of living costs?

If we have a lot of extra spending going on now is the time to take a stand and decree restrictions.

Challenge yourself to thin your reoccurring expenses:

What do our reoccurring expenses look like? Firstly, are there some that don’t bring any real value to our lives considering their price; could we eliminate them? Secondly, are our mandatory expenses at the best prices we could be getting for the service? Once all this spending data has been collected, the analysis has to happen, strategy has to be developed, and research undertaken to optimise the amount of income we keep in our name. Evidently, this showcases why we must learn how to organise our spending.

My process for my bottom line was very simple and has proven effective. I wrote a list of all the items I knew would be charging me monthly, with how much each would cost. The total of this was what I needed to expect to pay each month; any extra costs would be due to a sporadic need, or unnecessary purchase. By having the list posted physically, I could refer to it easily for planning out pieces of my financial future.

Over time, I looked at each reoccurring item and decided whether it was important for my life and happiness, or if I could live without it. After rebuffing the unworthy, the remaining items I then researched one by one for whether more affordable options were available.

Organise your spending to achieve freedom!

I will go into more detail in later posts about how I minimised my monthly costs to such lows, it really has to do with taking action in finding alternative options. Many options are out there; whether for transportation, food, shelter, memberships. However, it’s up to us to discover them. In conclusion, the first step is to organise spending. Put in the work and the costs will shrink drastically!

Godspeed in this endeavour team.

*Some situations are excluded from this: post-secondary students, unpaid internships, business start-up, etc. However, would be doing ourselves a huge favour by living as close to neutral during these periods of life.