Where did my money go?

by Efren Ll. Cruz, RFP®

Question: I get it, I need to save. I have already read one of your articles that says that prosperity begins with “s” and that is savings. But the problem is I don’t know where my money goes. Whenever I put money in my wallet at the start of the day, it’s gone by the day’s end without a trace. How can I save something that is so elusive?

Answer: There are many saving game challenges that have cropped up over the years. But before you are able to save, you will need to be aware of how money flows in and out of your finances. For this, the Personal Finance Advisers has come up with the Reality Cash Flow or RCF. Here is how it works. You will need a pen and a small notebook for tracking.

Where did my money go? — Photo by Photo By: Kaboompics.com

On Day 1, count how much money you have on hand. This would include money in your hand, pocket, purse or wallet and nothing more. We will call this your Beginning Cash on Hand. Do not include money in your piggy bank or even money in your bank.

As you go through Day 1, you might need to add money either through withdrawals from your (piggy) bank or by taking out loans. When you do, your Cash on Hand increases. If it is a withdrawal from your savings, jot down “withdrawal” and the amount in a sub-section you will call Sources of Cash. If it is a credit card availment or loan, jot down “loan” and the corresponding amount also under Sources of Cash.

Within Day 1, you will no doubt spend money. Lump your spending into major categories like food, transportation, children’s education and the like and write down the amounts spent under a new sub-section called Uses of Cash.

Please note, if you bought an item through a debit card or loan, jot down under Sources of Cash the amount of the appropriate transaction (e.g. withdrawal from savings via the debit card or loan), and the corresponding amount with spending purpose under Uses of Cash. Cash still flowed through your finances, just in an electronic book entry way.

Before you end Day 1, get your Beginning Cash, add to it the sum total of your Sources of Cash and deduct from the answer the sum total of the Uses of Cash. You will call the result your Ending Cash for Day 1. That amount should balance with what you have in your hand, pocket, purse or wallet. If it does not, recheck your entries and math.

Your Ending Cash for Day 1 will be your beginning cash for Day 2. Repeat the cash tracking process for Day 2. Again, your records should balance with what you have in your hand, pocket, purse or wallet when you do your end of day reconciliation.

Repeat the process for one week and you will immediately realize how money flows into and out of your finances. But that is just a realization. You will need to make it a habit of tracking your cash flow. So, why not do the RCF for three more weeks and two more days to complete one month. This realization will help you home in on the transactions that drain your cash balance to allow you to control the “leak” and save.

Over 9,000 training participants of the Personal Finance Advisers have attested to the effectiveness of the RCF. Why not try it? You have nothing to lose and everything to gain.

Now, it will be difficult to do the RCF alone. So, get a partner to help you challenge and check on each other. There are also SMS-generated coaching programs that provide daily lessons on personal finance that will indirectly remind you to keep doing the RCF. And the good news is that some of these are free.

While prosperity does start with savings, an analysis of your situation through an awareness of how cash flows in and out of your finances still precedes saving.

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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. He also writes for the Philippine Daily Inquirer’s Money Matters column HERE.

For more financial management advice for entrepreneurs, you can check out the column The Business of I Do on Inspirations.ph every Monday (publication date may change without prior notice) or send questions directly to yaman@personalfinance.ph.