As I learn more about managing finances, there are essentially a few categories we need to optimise:
- What we make (i.e. earnings)
- What we spend (i.e. expenses)
- What we grow (i.e. investments)
Well, clearly - the difference between the earnings and expenses, will determine the amount of investment that can be done to grow our money.
In this article, I want to talk about expenses and how we can optimise our expenses.
Why I Hate to Use Cash
To be financial literate, means you have to have a good pulse of your money. The amount that goes into your bank account, the amounts that goes out.
You need to understand all these and you will have a good sense of money flow.
For me, I personally don't enjoy using cash - as it is hard for me to trace why that money went.
However, when I use e-payments or credit card - it leaves a digital trail for me to understand why my money is going.
As much as possible, I would always use a credit card for my expenses.
Why? It simply makes more sense.
Paying with a credit card gives you rewards or cash back at the end of the day.
If I spend $500 on my expenses, a 2% cash back means that I would get $10 back for that month. Well, that's probably another two meals (or more).
However, by using cash - there is seldom such a reward.
The bottom line? Well, use credit card as much as reasonably possible.
Automating your Expenses Calculator
There is also another hidden advantage that most people do not tap into, when using cards for payments.
When you make a e-payment or a credit card transaction, you usually receive an email on the following details:
- Date/Time of Transaction
- Amount Spent
- Merchant (i.e. paid to who)
Example of an email I received from an online transaction
"Well, Gin - I hate all these spam emails..."
Now hold it right there, before you delete these emails.
Because, they hold a wealth of value when it comes to analyzing your expenditure.
Now, with the power of automation - did you know that you can easily sieve out all these data and automatically key them into Google Sheets?
For more information, go on YouTube to search for "Zapier - Gmail + Google Sheets". Alternatively, you could wait for me to come up with a detailed video series 🙂
Yes, this is exactly what I do - to get a good sense of where my money is going.
The moment I make a transaction, the automation will extract these detail from my emails and enter into a Google Sheets document.
In the past, I use to do this manually. But as you know, it takes discipline to record down all your expenses.
But today, all of this is automated. No discipline. Just straight up, a clean set of your expenses delivered to you.
Example of automated input of expenses into Google Sheets
Food for Thought: If you are reading this, do you know exactly (to the dollar and cents) how much your monthly expenses are? If not, it might be wise to start automating your expenses calculations.
Why Bother Tracking All These Data...?
If you are a avid reader of Passive Seeds, you probably are not new to this concept of financial freedom.
Financial Freedom is not about being rich. It is about having your Passive Income more than your expenses.
The key words here are, "More than your expenses".
But hey, if you don't even know about the exact amount of your expenses - how you do you even know how much you need to be financially free?
This is why it is worth tracking this data.
And to have these data in the first place - you need to use digital payments such as your credit cards. In doing so, you are also getting credit card rewards such as cash back, optimising your finances.
The strategy here is to compute and have a clear idea of what exactly are your expenses. This will help determine how much passive income you need to be financially free.
Point to Note On Credit Cards
Some of us may have concerns using credit cards as failure to pay your dues meant insane interest rates.
Now, when I say to use your credit card more often - I am not asking to you to spend the money mindlessly and wind up unable to pay their payments.
If you are unable to handle the urge of spending money, then possibly yes - this risk is very relevant and you might want to consider not having a credit card.
Another concern raised are annual fees.
However, it should not be a concern as most credit cards would allow for annual fee waiver. Personally, I have yet to encountered an issue where they did not allow me to waive of the annual fee.
The Bottom Line
To master your financial freedom, you must first understand your expenses. Else, you wouldn't know the exact figures you need to be financially free.
Once you understand your expenses, the next is generating cash flow.
For this, you might want to take a look at our Options Cash Flow Mastery Course down below 🙂
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