Rich Lad Poor Lad

Rich Lad Poor Lad

Financial management is no easy task and there are many who deal with the fear of being broke on a monthly basis. Many people have no clue how their income drains out of the holes in their pockets. If you too think you are going to end up homeless in a city subway busking with an out of tune ukulele, then you must read this post before it is too late.

There are simple things that make huge difference in life. And saving money is not a small skill to hone.

When I was in my first few jobs I did not save anything for years. I realised I was spending on things I did not care about or even worse, was unaware of.

Much later in my career I met this wise person who gave me the advice that completely changed the way I started to look at my daily expenses. (Zero points for guessing that the wise person was a Gujrati businessman). It is funny how a small advice on financial management can save you thousands of dollars.

The magical thing here is that you do not have to do anything path breaking.

It does not have to do much with your spending habit as such. It is about the data that you overlook and hence your brain does not give importance to it. It is about breaking a pattern, and making new ones.

This is a behavioural change that might just come by doing this one simple thing –

Write / Type your daily expenses as soon as you make them.

Make a record of every penny that you spend. Small ones too. Even the change that you ask your cabbie to keep, write everything.

I was surprised by how my monthly expenses were cut down simply by writing the expenses down daily.

There are many free apps that can manage this for you. Just make sure you write everything, everyday with a small description. You will have this data availible that you can then slice and dice to analyse you spending behaviour under headers like – Food, Commute, Grocery etc. viewed on monthly, weekly or daily basis.

One word of caution here: There are also apps that fetch this data automatically when you withdraw money or make an online transaction. Those are not going to help you. There is something about you making the entry of the expense which is the most crucial part of this whole advice.

Once you start doing that and make it a habit it must work. In my experience you might start cutting down on expense from your 4th or 5th month and start to save around 10% of what you are currently spending.

How does it work?

Frankly, I really do not know exactly how it works. But the important part is that it does work. I guess this works on you subconsciously, as every time you make that entry of expense, your brain actively participates in this exercise. This way you assign a whole lot of new patterns to your decision making. Thanks to this new data / information / insight that your brain now has, it has to make good use of the data in your behaviour. A part of your conscious and sub-councious respects your habits and behaviours. This is like one of those psychological hacks – When you feel good you start to smile, and if you start to smile your brain gets tricked into feeling better.

If you are like me who likes to play with data, you can also generate real insights about your own spending behaviour like – expense over weekends Vs weekday. I realised I spent more money on commute than on food over the weekend. On weekdays it is the other way round. Also it was a great thing to know that I spent less money on an international vacation compared to the domestic getaways.

There are many reasons this might not work for you and you might still end up homeless and broke, but at least you’d have the data to blame the real causes for your misfortune and a story to tell.

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