Wise consumers tend to have some similarities when it comes to personal financial management – they track all of their expenses and continually update their financial goals.
A monthly budget is a useful tool you can use to track both income and expenses. The information enables you to adjust your spending habits and make better purchasing decisions. Over time, budgeting can help you save more money and reduce debt. Let’s take a look at how you can start tracking your expenses.
Tracking Your Expenses
- Column 1, Categorize Expenses: Make a list of all your monthly expense categories, big and small. Examples include housing, childcare, transportation, food/grocery, insurance, clothing, retirement, medical, gym and entertainment. Be sure to create a “Miscellaneous” category for unexpected items and purchases that don’t easily fit into other categories. Review past bank statements to get a feel for the types of purchases you make on a regular basis.
- Column 2, Projected Costs: Estimate the amount of money you expect to spend in each category throughout the month. Again, past bank statements can help with this task. Your projected costs should not exceed your total monthly income. If it does, you need to make some adjustments. Consider cutting entertainment expenses and other non-essentials until your income allows for them.
- Column 3, Actual Costs: At the end of each month, tally all of your expenses. Every purchase, including small items like lattes, fast food and tabloids, should be accounted for.
- Column 4, Difference: Evaluate your spending for the month. Calculate the difference between your projected costs and actual costs. Record the difference and ask yourself:
- Where did I fall below my projected budget? Where did I go over? Why?
- Did I achieve any short or long-term goals for the month? Why or why not?
- What are my goals for the next month? How long will it take to achieve these goals?
- Overall, how do I feel about my finances this month? Why?
Many of us don’t realize how much money we actually spend until we document everything. It’s likely you’ll be surprised just how much small purchases can add up.Tracking your expenses enables you to identify poor spending habits early, before they turn into hefty debt problems. Tips to keep your monthly budget on track include:
- Don’t lie to yourself or skimp on recording. It’s important to keep tracking all your expenses.
- Be realistic. We all need a little fun and balance in our lives. Allocate what you can, without inhibiting your goals.
- Stick with it. Your true spending habits will emerge over time. Track your expenses every month – not just a month or two – in order to get a realistic financial picture.
- Be accountable. Share your financial goals and progress with a loved one. Seek out encouragement and support.
- Always have a goal in mind. Use your budget to help you achieve your financial goals, such as paying for college or buying a house. As you reach your goals, adjust your projected costs/categories to accommodate new goals.