Did you ever wonder why you are lacking money at the end of almost every month? Did you ever ask yourself why you have to use your credit card to pay the bills because there is no more money left in your bank account? Here is why: The lack of money is strongly correlated with the lack of discipline. You have to change your habits in order to change your financial situation.

But as most of you know, altering habits is not an easy task since it requires constant awareness of one's actions. Achieving this goal is a process of behavioral change and not a do-something-one-time event.

So in case of controlling your own finances, let's start with the easier part: Controlling expenses. The tricky part here is that you have to keep the overview over all of your spending during a period of a whole month since we are conditioned to a monthly thinking due to monthly incoming paychecks. During that period of time there are usually many small expenses which add up but hardly can be remembered. Hence it is hard to tell whether you are still living below your means during a month or not.

To solve this problem, let's introduce an effective expense tracking method by using a simple example: Let us assume your net income from your paycheck is 2000$. Let us further assume, you have some fixed costs which consist of the following:

  • fixed cost of housing (home mortgage payment + insurance + related stuff): 650$
  • fixed costs for using a car (car loan payment + insurance + related stuff): 250$
  • save 10% of paycheck into a savings account (not really an expense): 200$

This means there are 900$ left to pay for variable costs which e.g. include food, water, gasoline, car repairs and consumer luxury. This also means that you have a 30$ budget to spend per day, if we use the approximation that every month has 30 days.

Now here comes the practical part: Every single time you pay for something which falls into the category "variable costs", take out your cell phone and note down the amount of money you just paid. Make it a habit. Then at the end of the day, use your computer, open an excel sheet or something similar, put in the notes from your cell phone about the money you spend and sum it up. Over the course of a month this sum will grow larger and larger. But at any time you will know how much money you spend so far during the current month and how much budget you have left.

The great advantage of this method is that you are always able to adjust your spending accordingly. For example, if on the one hand, it is the 10th day of the month and you already spend 350$, then you will know that you are a little bit over your budget and you have to decrease your spending the next 5 days and reevaluate in 5 days. If on the other hand, it is the 20th day of the month and you only spend 500$ so far, then you will know that you still have 100$ left to afford a nice dinner with your friends.

After all, keeping an eye on your expenses is crucial in order to control your expenses. If you control your expenses, you control the easier part of your finances and live below your means. If you live below your means, you can seek to expand your means which is the harder part of the game.