Why is it useful to analyze how you have spent money in the past?

Answer 1

Two reasons leap out:

1. Assuming that you don't plan to change your buying habits, knowing how much you've spent (and what you've purchased) in the past is a good indicator of what you'll be buying -- and how much you'll be spending -- in the future. You'll have to figure inflation into the calculations...and you should also estimate future promotions or COLA raises. This will give you a basic idea of whether or not your projected income will let you continue your current level of spending into the future. On the flip side of that coin, it would also let you know whether or not you can afford to switch companies or careers (either of which might entail a drop in income) without changing your buying habits.

2. If you have been sinking into debt (or running up your credit balances, same difference), a review of past expenditures may give you the best outlook on items or areas where you can reduce spending to stay within you income and start paying down your debt.