In “Turning over a new leaf – Part I” we talked about developing a plan to eliminate your debts and tracking your cashflow over a period of time.  I recommended that you record all your transactions for at least 12 months.

By this time, hopefully, you have been faithfully recording all of your purchases for at least 3 months in the cash flow template I suggested that you use.  Recording our cash flow is easy with this budgeting tool  The important thing is that you are using some method to record and categorize your purchases month by month.

So far from Part I we have:

  • Step One
  • Organizing your debts according to the interest rate and developing a plan to pay them off over time.  Hopefully you are already making a dent in that mountain of debt you’ve accumulated and are starting to feel better about yourself.  Well done!  Keep going!

  • Step Two
  • Recording your expenses (bills & purchases) month by month and sorting them into their respective categories.  Hopefully you have been looking at the information you’ve been diligently collecting and have started to notice a few things.  If you haven’t done that yet please stop now and fill in the appropriate columns in the spreadsheet.


  • Step Three
  • We are going to take a closer look at the information you have gathered in Step Two.  And talk about how to use that information to better manage your money.

    First you will notice that some expenses are the same every month (fixed expenses) and some change from month to month (elastic expenses).  Financial elasticity is an interesting concept.  In simple terms – the more an expense changes the more control you have over it.  You chose how you spent that money.  You can’t easily change how much you spend on fixed expenses such as rent and car insurance.  You can easily change how much you spend on elastic expenses such as clothing, entertainment, dining out, and groceries.  Do you see where I’m going with this idea?  Once you identify the expenses you have the greatest control over you can make choices about how much you spend on those purchases and when you spend it.

    Understanding that you have control over how you spend your money leads to the second concept that we need to talk about.  What you choose to spend your money on will tell you what your financial priorities are.  Let me put it in a simple scenario for you –

    • You have $100 in your hand and you have 2 things you want to do.  Each thing will cost $100.  Since you only have $100 you can only do one of them.  Whichever thing you choose to spend your money on is a higher priority for you than the other thing.

    This may seem very simplistic and you think: “Duh, of course!”  But when you look at how you have spent your money in the last few months – are you happy with the choices you have made?  Or do you look at your choices and think: “Why did I do that?”

    You actually have 2 sets of priorities.  Your conscious priorities are what you think you should be spending your money on.  And your unconscious priorities are what you are really spending your money on.  Sometimes they are the same and sometimes they are not.  It is possible for your conscious priorities and your unconscious priorities to be different.  This is because your conscious priorities are controlled by your mind (your “reason and logic”) and your unconscious priorities are controlled by your emotions (“what feels good”).  This concept was touched on in Part I when we talked about “needs and wants”.

    I met with a lady who was struggling to provide for her family.  She had 4 children and was relying heavily on community resources to meet her family’s needs.  When we reviewed her cashflow together she realized that she was spending more on cigarettes and alcohol than she was spending on food for her children.  There is no question that she loved her children and would do anything to protect and provide for them.  Until she actually saw what she had done she hadn’t realized how disconnected her conscious and unconscious priorities were.

    Take a minute to go back over the expenses you have recorded and ask yourself which were “conscious” and which were “unconscious” purchases.

    The third concept we should talk about is the pattern to your cashflow.  Every cashflow has a pattern, understanding cashflow is a key ingredient to financial reform.  This pattern may change over time and will be affected by your work, relationships, ethnic background, age, education, and family situation.  Any change in your life will change your cashflow pattern.  Over time you will see that there are fluctuations in your overall expenses (peaks and valleys).  Unfortunately it quite often seems that the peaks in your expenses coincide with the valleys in your income.  This leads you to become dependent on credit to fill those gaps.  Unfortunately, once you become dependent on credit it’s very hard to break that dependency.  Luckily, since you’ve been tracking your income & expenses you can now see where the peaks in your income coincide with the valleys in your expenses.  This creates surplus cash, some of which should be saved to cover those gaps.

    Let’s recap what we’ve covered because there is a lot to think about in this article:

    • Elasticity – some expenses are fixed and some are elastic.  The more an expense category changes from month to month the more elastic that expense category is.  The more elastic an expense is the more control you have over how you spend your money.  The money for what you want to do could be buried in what you are already doing!
    • Priorities – how you choose to spend your money tells you what your priorities are.  Your conscious priorities are how you think you should be spending your money.  Your unconscious priorities are how you are really spending.  Ask yourself if you are happy with how you are spending your money!
    • Patterns – your cashflow has a pattern.  Understanding where the peaks and valley hit in your cashflow will help you know when you have excess cash to work with and how much you can save to cover the gaps.  Having money in your savings will help you break the credit dependency cycle!

    Having a better understanding of how, why and when you spend your money will help you to better control your spending habits.  Keep tracking your cashflow over the next few months and watch to see how your priorities and pattern change now that you understand yourself better.  You may find that as your spending habits change you actually have more money available to reduce your debt even faster and to start thinking about setting some financial goals.

    In the next article we’re going to have some fun with the future.  It’s goal setting time!

    Sheila Smelt is a Certified General Account, a Charter Professional Accountant and a Chartered Insolvency & Restructuring Professional.  She has provided financial counselling and insolvency advise to individuals and businesses throughout the Fraser Valley for over 16 years and helps them deal with their financial problems.  She also teaches workshops and seminars on personal financial management.


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