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Why it's important to know how much you're spending.

We've become a credit card nation. Credit card companies are waiting for students when they register for college. They are glad to give them credit and let them charge up the bills. Why? Because they know they'll earn much more in interest payments than the items cost in the first place. It's important to know how much you are spending to keep from getting caught in this vicious cycle.

Another reason it's important to know how much you are spending is to ensure that you build a good credit rating. If you are overspending, you may eventually exceed what you can pay each month. If you start to miss payments, you'll find your credit rating taking a nosedive. Then where will you be when you want to buy something important, like house or a car? You will probably have trouble getting a loan for a house or a car, but you'll also continue to accrue debt on the credit you already have. Too many people continue to use their credit cards as if they were cash. Gone are the days when we used only the amount of credit we knew we could pay back.

Even if you get the loans for those big items, it's important to know how much you are spending because you need to pay them back. Not paying your bills can lead to repossession of what you have purchased on credit. This is especially true if you don't pay your car loan. This can lead to repossession. Also, there is no fooling around when paying a mortgage. If you don't make your mortgage payments, it can certainly lead to foreclosure. This may seem to be an extreme example of what can happen if you lose track of spending, but unfortunately with interest rates the way they are, it's difficult to recover once you let things go beyond your budget.

Beyond these extreme examples, on a smaller scale it's important to know how much you're spending in order to maintain a budget. One way to accomplish this is to keep a notebook and keep track of your purchases for a couple of weeks to a month. At the end of the month, group like purchases together to determine how much you are spending in different categories. Knowing how much you're spending will help you find ways to economize when you want to save for something special. Most importantly knowing how much you are spending will help you to keep your head above water financially and prevent you from finding yourself in a situation you can't solve.

Learn more about this author, Lou Belcher.
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