In my introduction post I described how I’m going to run through the whole gamut of home finances. In this, the second post in the series, I’m going to show you why understanding your finances is perhaps the most important step to take in getting everything under control.
Your home finances often seem complex and often don’t have a great paper trail either. This coupled with the reluctance that a lot of people (me included) have to look at where we actually fritter our money away to, can lead to a lot of potential problems. For example, I know people on £80,000 to £100,000 ($125,000 to $157,000) who think they’re hard up and don’t ever seem to have any spare cash knocking about. Of course some of it is about lifestyle expectations but I also know people who pay out £120 a month for joint gym membership and have done for years now without ever actually attending outside of the induction.
Sitting down and working through your regular outgoings is part of the path to understanding what you spend your money on, which is a key part of streamlining your expenses so you have more money in your pocket to spend on the things that are important to you.
There are many things you might find out if you look to examine your personal finances. you might find:
- direct debits for services you no longer use or thought you had cancelled;
- small regular payments for a service or goods that add up to something much higher than you had anticipated;
- you’re not being paid what you ought to be for some reason that you’ve never checked;
- interest charges mounting up
The list could be endless and exceedingly varied/idiosyncratic but the real point is you won’t know until you look at it and you won’t be able to get some sort of control on what you’re spending against what you’re earning until you’ve done a proper analysis.
How do you do some proper analysis? I’m glad you asked because that is what we’re dealing with in Part 3.