In this series of five posts on the Five Essential Disciplines to Build Wealth we will review the five most essential disciplines of building wealth. I know that for many people the word “discipline” sounds bad. Discipline is the most powerful tool we all have to succeed. Without you failure is almost certain, unless you are incredibly lucky. So let’s get started with Essential Discipline #1: Keeping Track.
One of the most consistent differences between financially successful people and those that are not successful is that the successful ones keep track of what their money does. They keep careful track of every dollar that comes in, every dollar that goes out and what they do with the dollars they invest.
Spending, as you know, is extremely easy. It is easy to over spend. Unless you have an amazing photographic memory and can keep mental track of every dollar you earn and spend you must keep a record. No progress can be made without knowing what you are doing with your money. And, the next three Essential Disciplines require you to keep track.
Keeping track is boring. It is tedious and time consuming. It will also prove to be one of the most important and rewarding things you do with your time. It has been said that one of the main differences between those who are rich and those who are not is that those who are rich are those who are willing to consistently do the things that others do not want to do. So, if you want to build wealth and financial security you must decide here and now to implement these disciplines and you must start by keeping track of how you use your money.
How you keep track is entirely up to you. It should be a method that you are most likely to be comfortable with and use. For some it is using a small ledger book and entering all the information by hand. For those who are more comfortable with computers it is using a simple spreadsheet program (such as Microsoft Excel), a program designed to monitor finances such as Quicken or an on-line program such as Mint.com. Many banks now offer on-line financial record keeping so you may want to check with your bank first to see if it is available. It should be free if offered by your bank.
Make sure you record every dollar you earn or receive from whatever source. Money received and spent is not controlled. It falls in the “easy come easy go” category and is lost.
Make sure you record every dollar you spend and keep a record of how you spend it. One good idea is to divide all expenditures into discretionary and non-discretionary. You can most effectively control your discretionary expenditures and you want to keep a close eye on those.
Non-discretionary expenses are those you need to spend and might include rent or mortgage payments, utilities, insurance, non-elective medical, car payments, etc. Discretionary spending is everything else: food, some medical, recreation, etc. While some of these, like food and medical cannot be eliminated they can be more easily controlled than the rent. However even non-discretionary expenses can be controlled to some extent. Before you buy that cable TV package, decide to move to a higher rent dwelling or buy a new or used car you can make some decisions about whether or not you can afford those things.
Remember, what you do not keep track of you cannot control. If you do not control your money you will lose it – that is guaranteed.
Daniel R. Murphy
Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.