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By Robert Brokamp (TMF Bro)
August 7, 2002

If you've noticed a little sweating and fretting on the part of CEOs and CFOs around the country, it might be because Aug. 14 is coming. That is the day by which top executives of the 945 biggest companies must begin personally certifying the accuracy of their companies' financial statements, as mandated by the SEC.

"Rightly so!" we all say. We demand a prudent use of resources, a tight rein on spending, and a track record of steady growth. It makes sense to expect such discretion from the stewards of our investments and, indirectly, our economy.

Shouldn't we expect the same thing from ourselves?

Yesterday, we started our series on performing an internal audit by suggesting you start by looking at your balance sheet. This simple exercise will tell you your net worth, and provide a baseline from which to determine whether you're increasing the value of your empire over the years.

The formula for enhancing your net worth is simple: Spend less and save more. We'll cover the spending side today by encouraging you to take a look at your cash flow. In other words, ask yourself "Where does all my money go?"

There are many ways to track the flow of your dough, such as reviewing your bank statements from the last three to six months and calculating how much you spent on various categories, like food, shelter, insurance, and -- perhaps the most telling of all -- "Junk I bought but never used."

We know that exercise will prove informative, but we also know it takes a chunk of time. So, try this: Just for a day, record every transaction. Carry a piece of paper in your pocket and make a note of every time a greenback or a credit card leaves your wallet. At the end of the day, project the annual cost of each expenditure by multiplying it by 365.

For example, let's say you go out for lunch, which costs you $7. If you did that every day of the year, you would be spending $2,555 annually. Keep in mind that this is after-tax money, so if you're in the 27% tax bracket, you'd have to earn more than $3,500 to have $2,555 to spend. If you earn $40,000 a year, this means that almost 9% of your income went to lunch.

We recognize that analyzing just one day's worth of purchases provides limited information. (After all, if during the day you pay a plumber $100, that doesn't mean you'll send $36,500 down the drain each year.) If you have the inclination, keep an eye on a week's worth of spending, then multiply by 52 -- or even a month's. But we think that even a day's worth of money monitoring will be enlightening. (If you have your own ideas about how to scrutinize your spending, let us know on the Fools and Their Money discussion board.)

Tune in tomorrow -- same Fool time, same Fool channel -- to learn how to rein in your spending in order to save more for your goals.

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