Apart from entrepreneurship, programming and technology one of my primary interests is money and how it grows (or loses) its value. I haven’t written about money or handling personal finances before in any of my blogs, but I think it deserves a decent space where I can share my knowledge. All articles about personal finance and the various investment strategies or products will be specific to India.

First before suggesting new ways to handle your money and your investments, you should first understand where all your money goes right now. If I asked you how much you spent on movies last month? Or on dinner in restaurants? You would probably say “I don’t know, I guess Rs.1000? Was it Rs.1500?” When you don’t know how much money comes into your account and how much goes out, it gets very very hard to keep track of things and this pushes most of us into debt.

I am just going to ask you to do two very simple tasks for today. It hardly takes 20-30 minutes. Do this and you would get lot of insight into how bad (or good for some people) your money spending is.

1) Guess how much percentage of your income you spend on different categories every month

Take a sheet of paper and on the first line write down your monthly income (could be salary or your total income if you are self employed). Next write down the various categories under which one could spend money, eg: rent, loan repayment, credit card bills, electricity, phone & broadband, food, groceries, entertainment, medicines, dresses, gadgets, fuel, etc. Try to think of as much categories you can and guess how much percentage of your total income you spent.

Remember its just a guess and shouldn’t be exact. You shouldn’t try to write the exact numbers from your bills (that is the second part). Some numbers like rent and insurance premium will be easy to remember and you can write them down easily. The others like food, movies, medicines, etc., you will have to work with a guesstimate. Thats why I am asking you to write down percentages.

2) Write exact amount you spent last month under these categories

Take out your credit card bills, telephone bills, electricity, medicine receipts, bank account statements and write down the total you spent last month alone. Try to be as accurate as possible. The more accurate it is the more easier it is to identify where your money leaks.

Write them down on the side along with the guesses. Once your numbers are done, write down the actual percentage you spent last month against each category. Notice the difference between what you guessed you were spending vs what you were actually spending?

Both the above steps are necessary. You should know the difference between how much you “think” you are spending vs how much you “actually” spend. Once you realise this difference, you can easily make changes to how you spend on things which matter. So go ahead and finish these simple steps today and be ready to save more money for your retirement.

And in my next few posts I will be talking about how to funnel your money in through the right channels so that you can save enough money for your future as well as spend on the present day’s necessities.