Right now, spending habits are changing, for better or worse. With unemployment at an all-time high and many people working from home, your budget could be totally different from the usual.
Staying on top of your personal finances can be challenging, tedious and even discouraging, but for most people this process is a necessary evil. Spending more than you earn is a sure way to bury yourself in debt, and not being careful about precisely where your money is going can leave you struggling to pay for necessities like groceries. Fortunately, learning how to keep track of your personal finances is not difficult – but it does require some time and a fair amount of discipline.
Here are a few tips to help keep your money matters in order.
Create a system
The most important part of keeping track of your finances is consistency. Regardless of which way you choose to log your transactions, you have to be able to refer back to them easily and reliably. Be sure to include important information like the date, amount spent or gained, and expense category with each entry.
Expense categories are an easy way to figure out what you spend the most money on. These categories may include things like housing, utilities, household expenses, groceries, healthcare, pets, personal expenses and entertainment. These will of course vary from person to person and you can be as specific or general as you want with your categories. For example, you may simply want to record expenses as either need or wants. The important thing is that your system is consistent.
You can record transactions as soon as they happen, every time you get home, once a week or even monthly.
Use a computer spreadsheet
By using a simple spreadsheet on a program like Microsoft Excel or Google Sheets, you can organise your expenses clearly and even easily create graphs to better understand your spending. There are many specific ways to do this, but a good start might be to create a personal budget. This could be done on a weekly or monthly basis, and include information like the amount, category and date of each transaction.To create a personal budget, start by listing your fixed, regular expenses each month (like rent and utilities) as an expense on the first day of each month, along with your expected income for that month. You can then subtract other expenses or add other incomes as necessary throughout the week or month.
Keep a spending Diary
Track every rand you spend. It’s the foundation of a great budget. Even if you’re doing generally well financially, it’s important to keep checking where your money is going. You can keep your diary in an app, like 1Money https://play.google.com/store/apps/details?id=org.pixelrush.moneyiq&hl=en_ZA (available on GooglePlay), or store it as a note on your phone. The combo of a good old-fashioned pen and paper also works –whatever method provides the least barriers for you. The absolute simplest way of tracking your finances is to write a record of each transaction in a notebook. By always carrying this notebook, you are able to know exactly where every rand came from and went. At the end of each period (week or month), you can also transfer the information to a computer spreadsheet so that it is more accessible.You can organise this notebook in several different ways. For simplicity, you may simply choose to use the notebook for spending. Alternately, you can treat it more like a logbook and record both your income and your expenses and how they affect the balance of your checking account. Some people choose to use a notebook to track cash expenses only, combining it with debit and credit card expenses at the end of each month or week. Of course, an app on your phone can take the place of a notebook these days too – and many of these (like Google Keep) will sync immediately to your computer if you’re logged in, which makes data capturing so much easier later.
Check in on your money
Review your finances regularly. This step is key to making sure that things are running smoothly and keeps you from overspending on things like an overdraft with high interest rates and monthly fees or late payment fees. Even if your budget works well, it’s important to look under the hood and check in every week or two. You don’t want to be looking so often that it becomes an obsession, but often enough that you’ll catch any mistakes.
Think about your purchase priorities
You can only spend your money once. When you’re tracking your spending and looking at the big picture regularly, you will be more aware of what you are doing with your money and can make more empowered decisions. For example, if you don’t care about buying takeout, there’s no need to spend money on that if you would rather be using that money to work toward your savings goals or building an emergency fund. A great idea is to create a pie chart that maps out your priorities in terms of broader life values or goals, and then ask yourself – does my spending match in terms of this balance in my values? Often we find we spend a lot more on things that aren’t ultimately that important to us. The next step is to break those bad habits!
Save even if it’s a little
If you can afford it, save a little money. Think of it as paying yourself first. Having power over your finances is all about planning, and a lot of that power comes from having some money saved for when you really need it. Even if you’re not the planning type, you can automate your savings account to do this so you never have to think twice about it. You don’t need a lot; even R100 or R200 a month can do it. So, if you have that money, try to put it away. We often hear a recommendation of at least 10 to 15% of your monthly income. Over time, it will add up to a lot!
Using a Personal Finance App
There are a multitude of personal-finance apps available both for mobile phones and web browsers that offer services to track, tabulate and analyse your expenses. These apps also offer a range of comprehensiveness, from simply acting as a budget-creation tool to displaying all your assets in one place. In choosing one, keep in mind your financial goals and ability to commit to using the app.
You may want to choose a comprehensive app that pulls in all of your financial information from bank accounts, retirement accounts and other sources. These often also track your bills and remind you to pay them. Examples include: Moneysmart, 22Seven, Expensify and Monefy.
At regular intervals, the apps will supply you with analyses of your spending habits. Be sure to actually read these reports and think about adjusting your spending habits if necessary. Some apps will provide guidance on how to save money in certain areas.
Analysing your finances at the end of each month
Regardless of which method you choose to keep track of each transaction, you will also need some way of combining and analysing your spending at the end of each month. This will allow you to see where your money is going and allow you to make adjustments for next month if needed.
Start by totaling your expenses and compare the sum to your income for the month. Obviously, if you’re spending more than you’re making, you’ll have to identify the source of your overspending and try to make a change for next month.To identify where your money is going, you can try totaling your spending by category. That is, you should combine the totals spent in each expense category and compare them either to each other or to your total expenditures. Specifically, you can divide the total of each category by the sum total of all of your expenses for the month to get the percentage of total expenses accounted for by that category. This allows you to identify areas where you might be overspending. You can also use this information to create a working budget for next month.
Go easy on yourself
Money is an emotional thing –and so is living through a pandemic. If you mess up, it will most likely be OK. And if it’s not, you can do your best to recover. Use these tips to keep your finances in good health. Any step in the right direction, no matter how small, is worth it.