It is not as complicated as it sounds nor is it as dreadful. I know the thoughts are running through your head right now of not being able to have fun or having the enjoyment of purchasing clothes, eating out, or participating in exciting activities. However, this couldn’t be farther from the truth. Establishing a budget not only allows you to see what you are spending your hard earned money on, but it also allows you to set aside money each month so that you can enjoy your leisure activities.
What Are You Spending Money On?
It is necessary to write down your spending habits for at least one month. Consistently recording your purchases and bill payments will allow you to see exactly how much money you spend on various expenditures. Daily, jot down how much you spent on food, gas, books, etc… Carry a binder or notebook with you so you can conveniently jot down the amount spent before you forget. Keeping a log will dramatically open your eyes to the amount of money you are spending on a daily basis and will allow you to adjust your budget accordingly.
Create Categories
Create a list of categories that you can organize your expenditures in. For example, you decided to eat lunch at Panera Bread and you spent $10.00. Create a Restaurant category and place this amount under that particular category. Not only will you be able to track your expenses, but you will be able to quickly see where you are spending the most of your money. You may also use a computer finance software program to keep track of your expenditures, whichever works best for you. Write down as many categories as you can think of. You may have 10 categories or you may have over 20, it all depends on your lifestyle.
See Your Results
At the end of the month, tally the results of your log. Pay attention to where you have spent the most money and where you spend the least. Having kept this log should dramatically open your eyes to see exactly where your money has been going during a month’s time. You may be shocked to see that you spent $15 in late charges for overdue books at the library or you noticed that you spend a large amount on fast food. Take some time and sit down and look at ways you can cut back in certain categories or eliminate all together.
Personal Financial Management Using Free Tools - Part I
Have the financial gurus scared you out of managing your money? Is it because they want you to pay them to manage your money for you? You can manage your own finances. Just follow these 3 steps in this 3-part series:
1. Where are you now? Track your spending -- everything for a year. Put it all in a summary; I'll show you how. If you are like most people you are living paycheck to paycheck and have no idea where your money is going.
2. Where do you want to be? How much do you need to have set aside in 5, 10, 25 years, or when you retire? You need to consider life expectancy, inflation, rate of return, and yearly living costs during retirement. Just follow my hypothetical example using free software.
3. How will you get there? How much do you need to save each year in order to accumulate the total necessary? Consider the number of working years left until retirement, inflation, and your expected rate of return.
You won't need to buy any personal finance software or special Excel solutions. I use a free application called OpenOffice Calc; it's a little slower than Excel, but it can do just about everything that Excel can -- and did I mention that it's free? Just search "OpenOffice" and get your free download.
Let's get started. How are you at record-keeping? If you have your checkbook, bank statements, and credit card statements available, you can go through them month by month for the past year and fill in the table below. If, like most people, you have not held on to your records then just fill in the table for each month going forward.
This exercise is very important because:
It will help you answer the critical first question: "Where are you now?"
You will get a bird's eye view of your finances over an extended period.
You will be able to compare yourself with the average.
You will be able to spot where your money is leaking.
Create a table with the following:
Expense JAN FEB MAR ... DEC TOTAL TOTAL% AVG%
Gross income (Average 100%)
Income taxes (Average 22%)
Shelter (Average 19%)
Transportation (Average 13%)
Food (Average 11%)
Recreation (Average 6%)
Household (Average 8%)
Clothing (Average 4%)
Gifts (Average 3%
Other (Average 14%)
This is a simple 10 line spreadsheet to get you started. You may want to expand on it as you go and break the broad categories down. E.g. "Shelter" can be broken down into: Rent/Mortgage, Utilities, Property taxes, Repair/Maintenance, etc. The last category "Other" deserves special attention. Since this category includes, on average, 14% of our expenses, you will definitely want to break this down into line items which make sense to you and provide useful information to you. Some possibilities: health, personal, tobacco, alcohol, lotto tickets, education, books/magazines, etc. Remember, your goal is to find out where your money is going, summarize, and compare your situation with the average.
1. Where are you now? Track your spending -- everything for a year. Put it all in a summary; I'll show you how. If you are like most people you are living paycheck to paycheck and have no idea where your money is going.
2. Where do you want to be? How much do you need to have set aside in 5, 10, 25 years, or when you retire? You need to consider life expectancy, inflation, rate of return, and yearly living costs during retirement. Just follow my hypothetical example using free software.
3. How will you get there? How much do you need to save each year in order to accumulate the total necessary? Consider the number of working years left until retirement, inflation, and your expected rate of return.
You won't need to buy any personal finance software or special Excel solutions. I use a free application called OpenOffice Calc; it's a little slower than Excel, but it can do just about everything that Excel can -- and did I mention that it's free? Just search "OpenOffice" and get your free download.
Let's get started. How are you at record-keeping? If you have your checkbook, bank statements, and credit card statements available, you can go through them month by month for the past year and fill in the table below. If, like most people, you have not held on to your records then just fill in the table for each month going forward.
This exercise is very important because:
It will help you answer the critical first question: "Where are you now?"
You will get a bird's eye view of your finances over an extended period.
You will be able to compare yourself with the average.
You will be able to spot where your money is leaking.
Create a table with the following:
Expense JAN FEB MAR ... DEC TOTAL TOTAL% AVG%
Gross income (Average 100%)
Income taxes (Average 22%)
Shelter (Average 19%)
Transportation (Average 13%)
Food (Average 11%)
Recreation (Average 6%)
Household (Average 8%)
Clothing (Average 4%)
Gifts (Average 3%
Other (Average 14%)
This is a simple 10 line spreadsheet to get you started. You may want to expand on it as you go and break the broad categories down. E.g. "Shelter" can be broken down into: Rent/Mortgage, Utilities, Property taxes, Repair/Maintenance, etc. The last category "Other" deserves special attention. Since this category includes, on average, 14% of our expenses, you will definitely want to break this down into line items which make sense to you and provide useful information to you. Some possibilities: health, personal, tobacco, alcohol, lotto tickets, education, books/magazines, etc. Remember, your goal is to find out where your money is going, summarize, and compare your situation with the average.
Subscribe to:
Posts (Atom)
Posts
