How to Use Money Wisely

The time-honored adage ”Waste Not/Want Not,” expresses an attitude widely embraced by persons throughout the world. This is a sensible approach to life. Far less prudent are those who dissipate their assets frivolously. Never forget: Money is a perishable substance that deserves to be spent wisely. Blow it foolishly at your peril.

Difficulty: Moderately Challenging

Instructions

1. Identify your sources of expense. Review your expenses over the past 12 months. You can do this with the help of your canceled checks, credit card receipts and whatever else you retain as evidence of purchases. Then prepare a list of all these items on as many pages of paper as necessary, leaving a one-inch blank space to the left of each item.

2. Analyze each expense as to its importance. Expenditures can be divided into three categories: necessities of living, conveniences that make for a more pleasant existence and frivolous expenditures that do little to enhance our lives. In the blank spaces on the list you’ve just prepared, insert the appropriate letter to identify each as Necessity (N), Convenience (C) or Frivolity (F). In doing this, be as objective as you can. Do not, for example, rate the mocha latte you drink each morning at Starbucks as a necessity. Recognize it for what it is: a convenience at most, though more likely a frivolity.

3. Determine the advisability of terminating each expense. You will now go through the list, one item at a time, considering which may be eliminated as a factor in your life. Though it’s unlikely that any Necessity will be selected, you must contemplate the termination of each Convenience and Frivolity. Once you’ve identified those items which you can live without, you’re part-way home.

4. Investigate whether a less-costly alternative is available for each expense. If something you consider worthwhile is becoming burdensome, perhaps you can trim it back or find a less-expensive substitute. Your cable television service that has escalated in cost to more than $100 monthly might be replaced by a satellite system at half the cost. It’s worth contemplating.

5. Take action to eliminate or reduce expenses as appropriate. Now comes the challenging part—-actually taking action on your analysis. This is what separates the merely well-meaning from the truly dedicated. You will systematically eliminate or reduce those expenditures that provide no more than marginal enjoyment. And don’t forget the additional benefit in this process: the fun part, which is reveling in the extra money you have with no real loss in quality of life.

6. Periodically repeat all five prior steps. Nothing lasts forever. Slowly, but surely, the economies you affect will become less efficacious. In his book, titled The Law and the Profits, the late English historian C. Northcote Parkinson postulated the maxim that “expenditures invariably rise to meet and exceed available income.” For this reason, plan to revisit this project from time to time and do it all over again.

Tips & Warnings

• Be aware from the start that interrupting your spending patterns can be a traumatic experience. It will take firm determination to really pull it off.
• In pursuing this project, as with many others, don’t ignore Murphy’s Law, which says: Nothing is as easy as it looks. Everything takes longer than you expect. And if anything can go wrong, it will—-at the worst possible moment.

[globewatcher]

on 8/17/2008 Great tips, it really is amazing to see where your money is going. Taking action is the hardest part, it is also the most rewarding part of the plan. You can begin to see results

[SpeedRacer]

on 8/29/2007 Great article. I found that just laying out all your monthly expenses on a table or in a spreadsheet will be eye opening. It's certainly the first step in managing expenses and wisely saving money.