To Secure Your Company's Financial Future, Do This Until you really understand your spending, you'll never be financially secure.

I'm a financial strategist. I tell people how to manage their wealth. But I have a confession to make: I didn't have my own personal-finance aha moment until several years ago. For decades, I had blissfully blurred the line between "wants" and "needs" -- until I got a divorce, which is when those two things were put in stark relief. To maintain my predivorce lifestyle, I realized, I needed to immediately bring home five figures each month. I didn't need or want that kind of pressure.

Each of us may have a moment like this. You may think you're protected from it; I did, too. But here's the thing: Even if you do avoid a life-changing financial shake-up, you should always understand how you use your money. And you can't accomplish that until you divide your spending into many little pieces.

Here's how I learned to do it.

Right after my divorce, I had to downsize fast. To do that, I needed to figure out what my true needs were. What were my critical expenses? That seemed to be straightforward enough: My mortgage was clearly a necessity, as were my property taxes, insurance premiums, car payment, cellphone and grocery bills. But the task quickly became more complicated -- because each of those "need" expenditures was also based on my "want" to live a certain lifestyle.

So for three months, I tracked my spending down to the penny. Using credit card and bank statements, and cash receipts, I grouped my expenses into three categories: fixed, variable and discretionary. Clearly, my discretionary spending could be nixed (adios, shopping splurges). Then I zeroed in on fixed and variable costs. And once I had a list of those, I developed a two-part question and applied it to every expense:

1. Does this purchase fundamentally make my life better?

2. Is there a cost-effective alternative that provides the same benefit?

The answers led to two key conclusions: Damn, I wasted a heck of a lot of money! and I have more control over this than I thought! Needing to put a roof over my head didn't mean it had to cover 3,000 square feet. Same went for my grocery bill, which was out of hand thanks to my organic-food and expensive-wine habits. Within two months, I traded in the big house (along with its big utility bills, and big rooms to furnish and clean) for a tidy condo a few blocks away. I also replaced my precious SUV (and its high monthly payments, costly maintenance and gasoline bills) for a more affordable and reliable sedan.

Do you need to start making significant changes like these today? Of course not -- and even if I said yes, I don't expect that you'd put your house on the market tomorrow. But I strongly advise that, right now, you find some small way to cut your expenses. See how it makes you feel. Chances are, you'll discover what I did—that you barely miss the old, more expensive thing, and feel great about your savings. You'll teach yourself a valuable lesson, and one that you might return to in tougher times.

I kept going: I ditched the gym membership for a bike; I learned to say no more often to my kids (and wouldn't you know it, they still love me). Poof! In total, I cut nearly $3,500 off my monthly nut. And several years later, my quality of life hasn't suffered. I still get to travel when I truly want to, and I never feel I'm living a life of self-deprivation. As it turns out, I simply didn't need to make as much money as I thought to live a sweet life. And now that I know that, I know I'll be just fine if times get tight again. That knowledge, my friend, is worth more than anything else.