Where does all your money go? Payday is just around the corner for those who are employed, though some, like bankers, already have their salaries in their accounts. As we come to the end of January, the current financial month, and inch closer to February, the beginning of a new financial month, it is good to ask yourself, do I really know exactly where my money goes? A lot of people live day by day, week by week, month by month and year by year, without really knowing where exactly their money goes. They might know that it pays the bills, but how much exactly pays the bills? How much goes to fuel? How much to entertainment? If I ask you how much you spent on rent last year, would you be able to tell me Sh300, 000 without faltering? What about how much you spent on water or food or electricity or gas? To optimize your money, you should be able to know where it is going. When you know exactly how much is going into which expense, then you can analyse if you are spending your money exactly as you want to or whether you can change some of the items on your budget. For instance, by tracking my own spending, I realized that I was buying a packet of mabuyu (coloured and flavoured baobab seeds) every day. This habit added up to about Sh14, 600 every year on mabuyu. I do love my mabuyu and want to continue eating them once in a while, but do I really want to spend Sh14, 600 on mabuyu? I could have bought some shares with that cash or invested in a unit trust or even bought a much-needed gadget. That’s what I mean, when you can tell exactly where every last shilling of your money is going, you can make better decisions, decisions that actually work in your favour, instead of complaining all the time that you have no money to save, yet every year you spend Sh14, 000 on mabuyu or Sh30, 000 on handbags or clothes that you don’t even use. So how do you tell where your money is going? 1. The notebook approach Carry a small notebook with you starting tomorrow and note down every purchase you make, no matter how small. For instance today’s entry could look something like this. 25th January 2016 Morning fare Sh100 4 Tropical sweets Sh10 1 PK chewing gum Sh7 Lunch (rice and beans) Sh100 Airtime Sh250 Bundles Sh50 via Mpesa Evening fare Sh100 Boda boda Sh50 Bread Sh 55 Milk Sh45 Kenya Power tokens (16) Sh600 Total: Sh1367 The next day you do the same and so on for a month or three or more. A month is sufficient to get a grip on where exactly your money goes. Once you’ve collected data for a month, group it into categories like in this chart. Add categories if you don’t see them on the chart, but they are there in your spending. Knowing where your money goes might help you find some money to save and invest. Like in my case, I might decide to be carrying a banana from home instead of buying mabuyu every day and only eating a small pack of mabuyu once or twice a month as a reward for meeting my savings goal. By cutting out mabuyu, I might save an extra Sh10, 000 that year. 2. The app approach If carrying a notebook is too much work, you can download an app like Monefy or the local Centonomy Spending Tracker and use it to track your spending every single day. The goal is to find out where your money is currently going so that you can decide if you want to change some things to use your money more optimally. Once you track your spending, see if you are using your money within the recommended budgetary allocations. If not, you can either reduce your allocations from less important categories, and increase allocations to more important categories, or find a way to earn more money to meet your needs. 3. Take charge of your spending One way to check your spending so that you don’t spend too much in one category at the expense of other categories is the envelope system popularized by Dave Ramsey. Allocate a specific realistic amount to each budget category and put it in an envelope (the envelope can be virtual). So if you have set aside Sh4000 for groceries between 1st February and 29th February, you can only use that money for groceries. If it is in an actual envelope, you can see the money being depleted slowly by slowly and you cannot use that money for anything else. Once it is depleted, you can no longer buy groceries until you get more money/income the next month. The envelope system is good to control your spending on budget items that usually go out of control. So for instance, you can have an alcohol envelope, an entertainment envelops, shoes envelop, fun money envelop to do with as you please.