The Ultimate Secret to Controlling Your Money

This brief article may be the most important one you will ever read about money. It is not about real estate investments, insurance, or stock market wizardry. It is not about banking, accounting or taxes. It is about a simple, almost mechanical tool for directing the use of your money.

Why This Step is So Important

This step is what I call “resource allocation.” What this means is simply a system or method for seeing that your money goes where you want it to go.

If you have found a method of your own, great. But the fact is that the vast majority of people today do not know how to manage their money in a way that keeps them in control. As a result, whenever they have an increase in income or pay off a major obligation the newly available money just evaporates into the mass of spending opportunities that surround us all.

The previous three steps in this series have all been in preparation for this one. This is the central key to the whole process of getting control over your money.

This step is nothing more or less than putting into place a simple, effective system for a controlled dispensing of your resources. I cannot overemphasize the fact that if you do not learn how to do this somehow, you simply cannot ever really succeed with money.

Understanding "Resource Allocation"

Before explaining the details, it is helpful to understand the framework of the process, what it is intended to do and what it doesn’t do. Just keep these thoughts in mind when we go to the next part of the discussion which explains the mechanics of the process.

The specifics of the method I am going to suggest are certainly not the only way to do it. You may prefer a somewhat different approach. That doesn’t matter as long as effective controls are put in place.

A few people can manage their affairs like a business accountant. I’m not one of them. The method I will describe is simple enough that once it is set up, just about anyone should be able to maintain it effectively.

If you try another way, OK, but pay attention to the comments I make with each part of this description so you will be aware of the essential elements of any approach that works.

Keep in mind that this is a method of control. It will not tell you how much to spend on anything in particular. It just allows you to guarantee that you will spend the amount you choose to spend where you want to spend it. If you don’t like how much you are spending in some area you can change it at will.

Recognize that designating individual expenditures in the way we will discuss will not change the total amount you are spending or investing either. That only happens when you manage to do so by increasing (hopefully not decreasing) your income somehow.

Think about it. All of your money is going somewhere every month right now. This procedure will simply help you find out for sure where it is going and help you direct or redirect it at will.

Also, think about the relationship between this step and your spending plan. The spending plan lets you see how you are using your money and enables you to see how you might make choices to improve the use of your money. This step provides the mechanics needed to see that it happens as you choose.

Using Multiple Accounts Makes It Easy

The secret is to set up several accounts, whatever is needed in each individual case. Each one will control a certain group of expenditures.

You could use one account, say a checking account, for all of your fixed expenses. This can include your mortgage, car payments, even retirement funds.

Other expenses can be included here that appear to vary from month to month, but are still predictable by adding payments together for the year and dividing by twelve for a monthly rate. You see here how the spending plan may already have this amount projected for you.

At the first of the month, or for each month if on a different date, you will deposit exactly the amount required to meet the required expenditures in this account for one month. The same will be true for every account you establish.

Should any extra money come in not required to exactly meet these needs it should be placed in a reserve savings account. Leave it there until a purposeful decision is made about its use.

You may need several accounts for variable expense areas. This is the most important part of this plan because it is in these flexible areas that your money just disappears without trace.

Don't get hung up on the idea of accounts. They don’t have to be complex. For example, each person needs personal spending money. You could easily "allocate" the needed funds by giving a set amount of cash to each individual at the first of each month to be kept in a wallet and spent at will over the month.

This is How It Works

A look at the personal spending account is a good way to get an idea of what we are talking about. Say a husband and wife each get $100.00 in cash at the first of each month for their personal spending. Each family will identify how much money to include and what must be covered by these accounts.

Now if our previous discussions in the first steps have been followed we know that this does not represent a reduction in what has been going on previously. It is just the same. Consequently it is not difficult to adjust to what is no more than a slightly different way of handling the money.

The difference, while seemingly trivial, is immensely important. Why? Because over a short time a mental mindset takes over.

We adjust to having and spending a certain amount of money when we maintain a consistent amount to work with. We learn to cut back in one place so we will be able to spend more in another, perhaps in order to eat a more expensive meal one day we will eat a less expensive one than usual another. But always, at the end of the month we come out even. Or perhaps we even save a little over.

It is essential to incorporate every use of money into your system. Getting all flexible areas under control is the top priority.

Food and household items is a major one that is flexible, too. It will probably require its own account, possibly a checking account.

The important thing is to keep working until everything is covered, and at the beginning with the amounts you are now spending. This will not take as many accounts as you might think because in fact, most of your expenditures will be fixed and can be paid through one account.

The Fantastic Benefits of This Program

The most obvious result of using this system is that no expenditures will expand without your permission. You won't just haphazardly start spending more on some recreational activity, for example, without having to think about the costs and then finding and allocating the money to do so.

The most important benefit of this approach is that anyone following this system will automatically and without fail learn to live within their income. Once this is achieved everything else becomes possible. Without this essential element nothing is possible.

Almost as important is another benefit that becomes clear at this point. Whenever you get an increase in salary or whenever you pay off a debt, the resulting funds will be available for you to designate purposefully to specific uses. Without an allocation system like this, whenever more money becomes available it will simply dissipate into a thousand small places that don’t even register in our minds as any gain at all.

Looking Forward to a Better Future

Have you always wanted to take that special vacation or open your IRA. Soon you will find yourself being able to do many of these things you never could manage before because there was just no money.

Nothing is more important to our financial success than learning how to get into control of our money. And nothing is more important in getting in control of our money than learning how to allocate our resources to our purposefully chosen uses.

That being true, there is no more important action to take now than to get started putting into practice our own individual systems for allocating our resources. And honestly, once you know how, it is relatively easy.