As investors, we demand a prudent use of resources, a tight rein on spending, and a track record of steady growth from top executives. 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?
The formula for enhancing your net worth is simple: Spend less and save more. To cover the spending side of the equation, 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.)