Finances are one of the most common stressing factors out there, but you could get rid of the worry, or a good part of it, by clearly understanding and keeping track of how you manage your own money. In this post, I'll guide you through 4 basic steps that can help you in keeping a simple personal or household budget and build your financial dimension.
There are several ways to keep track of your spendings and savings. Either if you're old fashioned and you prefer to write things down on a notebook or you'd rather do it on an Excel worksheet on your laptop (there are also plenty of apps), the process will be the same...
1) Learn From The Past
"It's easier to know where you're going if you know where you've been."
Planning a budget for a specific period of time can be quite confusing and hard to know where to start, that's why knowing what you've done in previous time periods can help you in this matter. If you look back to how much you spent in which things, let's say, last month, you'll have a clearer idea of how you spend your money monthly.
Write down every expenses you've made last month. Any purchase tickets or invoices you may help you to be as specific as you can. Remember, this is not a way to make yourself feel guilty about the fancy dinner you had with your friends or the new running sneakers you bought, it's merely about getting a record of your expenses for later analysis.
If you can't remember a lot of your last month's expenditures, don't worry, make sure you write down this month's expenses, including dates if possible (for a better tracking). The right planning of a budget takes time, so don't stress out about it... you'll get it soon enough.
Now you've got all your last month's expenses written down, you can work with the data!
A good categorization is key to making this work. You could start by arranging your expenses into categories like these:
Get as creative and as specific as you like, just make sure it's a category of expenses you make on a regular basis. This will help you to keep an organized record of what you're spending and it'll be easier for you to analyze the data later on.
This is probably the most "difficult" step in this guide. Knowing what you've spent on previous periods will help you forecast and plan what you will be spending on next ones. For example: if you're recurrently spending around $30 or $40 a week on your groceries shopping, you'll probably keep doing it next month! Plan ahead and write down the average spending in each category from previous periods so you'll be able to forecast next ones as precisely as possible.
REMEMBER: The more specific you are in your planning, the easier it'll be for you to stick to your budget. So, make sure you include your partner's birthday present in the list of expenses too!
4) Review & Optimize
It's time to make a recap of your monthly finance status, what you spent and what you saved. Take the time to look through all your categories and how much of your monthly expenses each one represents.
Are you happy and comfortable with the split you see? If the answer is yes, then keep doing what you're doing, your expenses are probably what you expect them to be. If this is not the case though, then look out for the categories in which you can minimize expenses. If you're saving money and you're not achieving your goal at the rate you'll like, you'll have to optimize your expenditures.
There will be some categories like rent or education that are absolutely mandatory, but there will be others like shopping and entertainment where there's room for some changes. If you're used to buying your morning green juice everyday, try doing it yourself at home, this way you'll cut back on expenses while making sure your beverage is fresh and delicious!
Optimizing your budget is not about changing your life-style and daily routines, it's about doing the same with less amount of money.
Keeping a budget is all about organization! Once you get that you're all set!