One of the greatest mistakes you can make in managing money is not knowing where your money is going. About 90% of people who come to see me do not know exactly how they spend their money. Some may have small notebooks where they scrawl their monthly accounts but when they start to put everything down on paper, they are always surprised, if not shocked, to see the real state of their finances.



As obvious as it seems, most people just do not know their finances. This is always the most difficult part of managing money because, invariably, this is often when they realise they are spending more than what they earn. Money matters simply scare people. They are terrified to know how out of control their finances are. Yet, this is precisely what needs to be done before you can start working on a solution.

Planning and goal setting are critical to your success if you want to become financially secure. The two key traits of people who do not achieve this are, firstly, they tend to spend all of the money they have and, secondly, they do not know what they spend their money on. The lack of planning and goal setting is the main culprit. This is often referred to as 'spending unconsciously'.

Unconscious spending is more prevalent in our society than we realise. The reason why people spend without giving it much thought is they have no goals. Without goals, you live unconsciously from moment to moment, you never plan for the future, you spend all of your money, and as a result, you are unlikely to ever become wealthy.

All good businesses manage their operations by planning and budgeting. They have benchmarks that they budget to and compare their profit and loss results. Major expense items, such as salaries, rent or advertising, are calculated as a percentage of sales and operating performance is analysed according to these percentages. There is no reason why you should not manage your own finances in this way.

The glue that holds all successful business practices together is the master budget. It ties in all facets of the business: marketing, selling, financing, research and development, and personnel management. Without a good master budget that incorporates all activities of a business, an organisation will end up floundering. And a floundering business is rarely profitable.

The budget provides the cohesion between the differing objectives of diverse parts of the business and creates a unified goal for the total organisation to work towards. It enhances motivation, delegates responsibility and provides important feedback on the progress of individuals and the organisation as a whole. Not bad, for a simple system - that we all thought someone installed to punish us for our mistakes.

Budgets are not punishment. They are important, useful tools that guide us to where we want to go. They allow us to plan for our future yet control our circumstances along the way. They are not meant to be exact, but rather flexible and accommodating. They should change when we change, yet still be resilient enough to prevent us from going off the rails. They point us in the right direction and correct us when we fail. Without a budget for our finances, we are trying to win the 100-yard dash blindfolded.

In fact, if you use the same principles and apply them to your own personal finances you are well on the way to achieving financial independence.

Whilst it is important to become relaxed and carefree with your financial matters, this does not mean careless. You become carefree with money when you know that it is not a scarce resource, you set your financial goals, you invest a little time on a regular basis to plan and review your finances, and you systemically set aside part of your earnings regularly to build your savings and investments for the future.

You are careless with money when you do not keep track of what you are spending and squander money on things that are wasteful, extravagant and not needed.

Money management is about building a strong financial foundation that cannot be shattered regardless of what you may be faced with in the future. Regrettably, strong foundations take a little time to build. For those who want the instant wins and instant cures, their impatience is often the cause of their turbulent finances. If you are tired of worrying about money, now is the time to change. Take a little time out and start to think about what you really want. Set up a plan, follow a budget and be prepared to give it time to allow your money to grow.