Personal finance lessons
Tags: personalfinance, expenses
Published: 2020-01-16 19:02:43

As an immigrant, I’ve gone through a lot of money issues. I’ve learned from them and now I’m more satisfied with the shape of my personal finances. I’m able to save and invest about 30% of my family income every month. I’m writing this post to share my experience. I hope someone will benefit from it.

Lesson 1: Where did the money go?
Imagine this: you’re anticipating to save x amount of money by the end of the month. You live your regular life, and at the end of the month, you discover that your savings are not even close to what you expected. The first question that arises: where did the money go? It seems like there were no extraordinary expenses, everything was as usual but you can’t explain the difference.
Well. I’ve been in that situation a couple of times. And my solution to it is writing my expenses down. I have an Excel spreadsheet where I track every amount that I’ve spent. Every weekend I sit down, open my online banking and rewrite expenses from transactions list on my cards. It might seem overwhelming but it’s actually not. There are about 20-30 transactions a week. Luckily, I hardly use any cash these days, so my bank tracks my expenses for me. The only reason I transfer them to Excel is that I want to be able to categorize them in the way I need. My categories are Gas, Food, Household items, Shopping, Eating out, Periodic expenses and Other. I further break down my periodic expenses into rent, cell phone bills, Netflix subscription etc. Then I just do a simple pivot table by categories and months.
In that way, not only I know where did the money go but also can tell how much money was spent on crucial things like food and rent and how much was pretty much wasted on shopping and other unnecessary expenses. I’m not striving to avoid unnecessary expenses altogether. I think this is not healthy. I just try to keep them reasonable. And expense tracking helps me to keep them under control.

Lesson 2: Check your balances regularly
The first thing I do in the morning is to check the balance of my accounts. I’ve downloaded a mobile app from my bank and it helps a lot. I guess this is more psychological than practical thing but it allows me to be aware of how much money I have at every given day. The things I check are balances of checking and savings accounts, credit card balances and recent transactions and balances of my investment accounts. Many personal finance bloggers say that with more cashless transactions, we can’t really sense how much money we spend. I guess checking account balances compensates for that. At least for me.

Lesson 3: Recognize the real value of things
Every purchase we made has two parameters: price and value. Price is how much we pay and value is how much benefit we gain from that purchase. Here is an example. Let’s say you live in a big city and have to commute about 20 kilometers one way each day. But transit it takes about 2 hours (damn traffic jams) and cost you $150 a month for a travel pass. You can buy an old car that is still reliable and in pretty good shape for say $3,000. That’s your price. Now what you benefit from it. Your commute time will be down to 1 hour and 15 minutes, you don’t have to stand in jammed busses, you don’t have to carry groceries in your hands and you can go somewhere where public transit is not accessible (go for camping for example). Of course, you still spend time in traffic jams but sitting in the cozy driver seat of your warm (or cool) car. Also, you can decide to buy a new car for $30,000. You may finance it but at the end of the day, it is still $30,000 that you’ll pay. What is the added benefit compared to an old car? You might get fresher interior, more advanced infotainment system and maybe a little bit smoother ride due to new suspension. Is that worth an additional $27,000? This is the choice that you have to make but if you are aware of all the factors, your choice will be educated. 
I try to evaluate the proportion of price and value before every purchase. The same principle applies to everything: groceries, vacations, services. If I know what value I expect from the purchase, I can easily eliminate useless expenses or think about other ways of getting that value. Have you ever been hungry in the grocery store? If I’m hungry, I usually end up buying tons of stuff that later just get spoiled in the fridge because I don’t really want it. In this case, buying a little hamburger for $5 before entering the grocery store seems a wise investment. Five-bucks hamburger can bring down my grocery bill for a particular week by $50 – that is the value of the hamburger in this particular example. The trick is in recognizing it beforehand.

These are the lessons that I’ve learned from my personal experience. Please share your lessons and tricks in the comments and let’s learn together.