Determining Your Expenses
Determining Your Expenses
There are several reasons why it is of particular importance to
determine your expenses
when attempting to calculate how much disposable cash you have for investment. The most
obvious reason is that you need to keep enough money to pay your bills.
Plain English
It may seem obvious, but determining your expenses is the process of realistically
determining how much of your income is currently spoken for in providing for your
day-to-day expenses. Establishing this amount should precede any investing.
Another reason for figuring out your expenses is that you will gain a clearer understanding of
your own present financial health. You will quickly realize how much of your money you are
spending and where and on what you are spending it. Armed with this knowledge, you are in
a much better position to make investments relative to your overall financial picture.
For example, you may realize that you are spending excessive amounts in one particular
area and you may decide to try to cut back a little there to free up some cash. This newly
available cash could be used to invest in stocks. However, the amount invested wouldn't
even be available had you not determined your expenses and then subsequently noticed that
one expense area was particularly high. So, determining your expenses in advance was
directly responsible for your ability to make that investment.
The last reason for determining your expenses is simply good financial management, which
includes getting rid of debt and acquiring sufficient savings to deal with any emergency. Good
financial management is the basis for effective stock investing. You need to be able to
effectively manage your daily finances before venturing into the more complicated world of
investment.
