The Coin Chronicles, Chapter #2: “Follow the Money”

Photo by Freddie Collins on Unsplash

Now that we have defined what “enough” means to us, it’s time we follow the money.

I am not talking about following the money when investing. We’re far from investing still. I am talking about following YOUR OWN money.

Only if we know how much we spend precisely is when we know how much money we have. Only when we know how much money we have is when we know how much money we can spend precisely.

Have you ever felt like your money is slipping through your fingers?

That’s something I’ve heard so many times from friends and colleagues. Co-workers that earned as much money as I asked me how I save so much of my income when they are having a hard time saving at all.

It’s because I know where my money is going.

The benefits

First of all, if we don’t know where our money is going, we can never be sure how much we can safely put aside without touching it anymore. We will never define a specific, unchangeable savings-goal.

The second big benefit of knowing precisely how much money you have will prevent you from going into debt to buy some things that you don’t need to buy.

So many people buy a new TV or clothes even though their monthly budget is used up already. Thankfully they have a credit card with which they can pay later.

Don’t do this. Going into debt for consumer goods is the opposite of spending your money wisely.

If you buy that new TV even though you can’t afford it, make the first payment with a credit card and then intend to pay off the rest on monthly rates then this kind of spending behavior is what kills you financially in the long run.

You increase your monthly expenses even though you just barely managed to afford this month’s costs. How do you intend to pay it off next month then? Stop eating so you can watch TV?

Cool stuff, you just bought your new TV. Unfortunately, you now have nowhere to put it because you couldn’t afford to pay rent and had to move out…

See, where I’m going with this?

So how do we do it?

It’s not rocket science. All it needs is a little bit of your time. Here’s how you do it:

Take a day of your choice (rainy Sunday’s work great here), add to that a nice big cup of coffee/tea/hot chocolate and sit down with your computer and a notebook or note-taking app of your choice.

Now figure out precisely how much money you need to spend each month. Not an estimate. Precisely. Down to the last cent/penny/Rappen, whatever your currency is.

It is the part of your salary you never had.

People treat money differently depending on where it came from. If you find a 100$ bill on the ground, you are much more likely to spend it than if you earned it yourself.

It is called the Parkinson’s law. It states that the more money you have, the more money you spend (remember Chapter #1?). That’s why it’s important to limit the amount of money you have ready to spend.

Therefore you need to figure out how much you have to spend each month.

That’s rent, insurances, etc. The costs of living, which are completely fixed and don’t change at all.

Then figure out how much of your money you need to buy groceries, gas for the car and those vague costs that fluctuate each month a little bit but need spending as well. After all, living without food for a month is gonna save you quite a bit but you won’t enjoy spending your money on your coffin very much, will you?

Make a difference though:

You can spend money on groceries and you can spend money on going out. There’s a huge difference in cost here.

Once you figured out how much of your salary is gone the moment it hits your bank account, you know how much you have leftover to spend.

Say for example your rent is about 33% of your net salary. Add insurances, phone bill, Netflix subscription, and all that stuff and you end up at around probably 50–80%. That leaves 20–50% of your income to be spent.

The trick is to really sum up every expense of one full year. Write down how much of it is fixed and semi-fixed (fluctuating-fixed) and how much of your money you spend on other things like clothes, going out, gadgets, you name it.

Banks are getting smarter too, nowadays. Maybe your online banking already does this for you to some degree. Some banks implemented the feature where they categorize your expenses for you a little bit. Going shopping at the grocery store will put the expenses in category “food” for example. This makes it easier to get a bit of an overview but it’s mostly not sufficient enough.

• When you’ve calculated your total fluctuating-fixed expenses for the year, multiply it by 1.05 to add an extra 5% for safety and divide it by 12. These are your averaged fluctuating-fixed costs for the month.
• Now subtract your monthly fixed costs as well as your averaged fluctuating-fixed costs from your monthly net salary.
• What you have leftover is the money that you can spend each month.

That wasn’t so hard, was it?

I can’t stress how important I think it is to know where your money is going, because if you don’t even know yourself, how are supposed to start directing it where to go?

Figuring out how much money you have precisely will be the foundation for Chapter 3.

Stay tuned, until next time. Have a great day.

As always,
The Disclaimer: This is not financial advice but for entertainment purposes only. I am not a financial adviser and these words reflect my personal opinion only. If you need financial advice, ask a professional.