The Less You Have, The More You Need To Keep Track of It
You’ve been kidnapped and thrown in the trunk of a car. After your captors drive around for awhile, they pull you out and dump you in an unknown desert and drive off. You’re so far from civilization that you can’t even see a power pole. You can feel your skin dry in the heat.
Fortunately your captors tossed out a liter bottle of water and four Payday candy bars with you. You have a choice to make. Being hungry, do you wolf down the salty candy bars and wash the salty sweetness down by gulping your liter of water? Or, do you decide on the minimum you need of each resource to survive until you find help or civilization?
It’s wickedly similar to money. If you have little, do you ration what you have so that you can make it payday to payday or make the situation worse by ignoring what little money you have?
It’s more important to monitor your money when you have less. If all you have for a paycheck is four Paydays and a liter of water you’d better know how much of each you have and use each of those resources carefully. Being hungry and thirsty in a financial desert isn’t fun.
That little bit of food and water in the desert is easy to keep track of. It’s right there and you can see how much is left. Money is tricky. It’s numbers on a statement and a receipt for goods or services for most of us because we use debit or credit cards.
Are You Spending More Than You’re Bringing In?
Cards are really easy to use. The problem with them is you don’t actually see money go out of your hands and into the hands of someone else. Even if you were watching the bills leave your hand you aren’t watching the stack of bills get smaller.
Credit cards are a real threat. A credit card doesn’t spend your money. It spends someone else’s money and they’re going to want it back. If you didn’t have the money to pay for whatever, when you bought it, what makes you think you’ll have the money later?
Your cash flow statement will tell you when you’re spending more than you’re bringing in. It’s a simple idea. When you have more flowing out than in, you’re using credit to cover the difference. If you can’t afford a purchase now, how much less will you be able to afford when you’re making payments on previous credit purchases?
We all lie to ourselves. We tell ourselves that we don’t really eat out that often. We don’t eat that much processed food. You didn’t gain weight, your spouse shrank your pants in the washer. Here’s the king of all self deception – I deserve it. Do you deserve whatever “it” is or do you deserve having some money later when you need it?
A cash flow statement is deception prevention. When you look at your cash flow, you’re forced to confront your spending habits and how they reflect your priorities. Is your spending getting you where you want to go? The only way you’ll know is to look at your cash flow statement to see if your money is flowing into the places that make a difference for you.
Try using a cash flow statement. It doesn’t have to be perfect. Just take an honest crack at it. If you see the benefits in it you’ll get better at it as time goes on. It’ll tell you where your money is going, then you can decide if your money is going where you want it to, even if you don’t have much.
Written by – Mark Pringle