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So far, you have been asked to complete two exercises. One was to make a written estimate of the percentage of your total income that you consume and the other was to keep a written record of how you spend, save or invest every cent of your gross income. Today the importance and potency of the latter exercise will be emphasised. There are five key points: 1. First, this exercise is easier than it seems, and not as tedious as it appears. Most of your income is spent, saved or invested in relatively large chunks. Typically, it is the smaller amounts that tend to slip through your hands, day by day, that are the main target of this exercise. 2. Are you like most people who, when they “break” a $100 bill or a $20 bill to make a relatively small purchase, find that the entire $100 or $20 is gone, and where you don’t know? Does that sound familiar to you? Then this exercise is absolutely essential for you. 3. This exercise is particularly powerful for people with significant discretionary income. Yes, their salary is at the middle income or higher level, yet they are struggling to pay known monthly bills and expenses. They live with a sense that they have arrived at an income level where they can afford whatever other people within their salary range can. The problem is that they can’t afford the various spending they observe others doing, all at the same time. For example, one person they are observing may be undertaking the renovation of the home, while another may be going on a cruise, and yet another sending the children to expensive private schools – three different families. Yet, one observant middle income earner may be trying to do all of this at the same time. Having significant discretionary income can give that “I-should-be-able-to-afford-that!’ feeling that can eventually wreak havoc with financial stability. However, a knowing income earner find significant discretionary income would have developed a plan to enjoy all three examples and even more options over time – mainly because they know and control their spending, their saving , and their investing. 4. There is no one that I know who has done this exercise that has not remarked on its powerful learning points. This exercise will help you analyse your real spending, saving and investing. This, in turn, will best serve in preparing a realistic budget of income and spending. Further, your monitoring of how your gross income is disposed will provide realistic information for measuring actual spending against budgeted spending. That is because most people who have faithfully done this exercise have been surprised, sometimes even shocked, by the amount of frivolous spending that they do unwittingly. It is only when you have hard evidence that your spending is not in consonant with your goals for your life that you can then begin to curb certain slack habits. It is so important to truly know your spending, saving and investing . . . and to work on bringing them in line with how you wish them to be. 5. Finally, with information on how you have disposed of your gross income for at least a six-month period, assess your real consumption rate by evaluating your spending, compared to your saving and investing. How does this real percentage compare to your previously written estimate? Are you surprised? Do drop me a note to let me know how this exercise has helped you. firstname.lastname@example.org • Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.