Tracking income and expenses are not exciting activities. In fact, they are pretty boring. Consequently, I think my website is a bit dull.
There’s a reason for that. I can make it a lot flashier, but I want you to focus on the information, not the site itself. It’s way more important to me that you understand the processes than to be entertained.
I realized today that this website and blog could be the shortest in history. Once I teach you the steps to setting up a good budget system, you won’t need me anymore. You’ll learn to analyze your own reports and make strategic changes to your system. You’ll learn to use tools that will help you to put your plans into effect and succeed in managing your own money. And I’m good with that. That’s why I write this. People need to know how to take care of their own money.
So let’s get started
I’ve said before (and probably will say it again) that before you set up your budget, you need to map out where you are and where you want to go by tracking your income and expenses. Actually, that might even be backwards. Where DO you want to go?
Are you saving for a child’s college education or your own retirement? Is your current home your “forever home” or do you plan a move? Do you depend on credit cards now and want to start using just cash? What do you want your money to do?
Money is a tool to be used to supply our wants and needs. Good money management habits are key to reaching the financial destination we have in mind. But we have to know where we are first.
If someone asks directions to your home, they have to have a starting point, right? Even if you just give the address to GPS the directions, they need to know where they’re coming from. It’s much the same with setting up a budget. It’s easy to generally say things like “I don’t have enough money” or “I can’t afford that.” But that’s too general. Where does your money actually go? You learn this by tracking expenses. You need to know what you’re spending on now to be able to make changes, if needed, so that your money can work harder for you.
Income and expense tracking
Find out where you are by tracking your current income and expenses. My guide, PURPOSEFUL MONEY, gives a little more detail about how to efficiently track spending habits.
Let’s say you have two income sources, your paycheck and your savings interest. These get posted on your Income page.
Next, you list what categories you spend money in. These can include general categories, like housing, food, and transportation. Or you can break them down even further, i.e. housing:rent, housing:utilities, housing:insurance, food:groceries, food:restaurants, transportation:gasoline, transportation:license. The more detailed the category selection, the more accurately you can predict expenses by category. You’ll want a separate page for each category during this tracking session.
Keep receipts. Yes, I know it’s a hassle to get a receipt for every soft drink you buy or every time you give your kiddo their allowance. Okay, then, at least write it down. You’ll need an accounting of everything you spend, whether in cash, a check, a credit card charge, even an ACH or automatic payment. That information is golden when it comes to tracking and managing your money.
Posting is best done at the end of every day. Lucky you, if you didn’t have to spend anything today. If you did spend, take the receipts that you’ve collected from the day and write it down on each category sheet. It doesn’t matter what account or pocket it came out of. What matters is the category of spending.
Almost ready
At the end of the month, you know just how much you’ve spent in each category you listed. Obviously, you don’t want to overspend, but right now you want to learn where your money’s going so you can determine what expenses are most important and where to allocate future funds.
I generally recommend three months of tracking before actually allocating income to certain categories. That may seem like an eternity, but that length of time gives you a good average of how much was spent and how it was spent. But if you can only do one month, okay. This system is flexible enough that if you need to make changes midstream, they are very easy to implement.
Get your income and expense tracking guide!
My PURPOSEFUL MONEY guide has printable sheets for income, 20 expense categories and a report sheet to help you get started with manually writing in your data. You can get the guide here for just $7 ($10 if you go through my website).
OR you can get the 3 month automatic spreadsheets that will populate the report for you for just $10 (normally $17) . No calculator needed!
Want them both? Get this deal at just $14 for for guide, printable sheets AND the 3 month auto sheets.
I developed these spreadsheets for several reasons. The main reason is that my favorite budgeting software is now available only by online subscription. I prefer NOT sharing all of my personal spending habits with whoever might have (or hack) access. Additionally, when I want my data, I want it now. I don’t want to have to wait for the internet to be working to access my income and expense tracking reports. Sometimes internet access is unreliable. I also don’t want someone else responsible for backing up my data. That’s my job, thank you. Now you have the same options.
There you go! Start expense tracking and get ready to see some magic in your finances.
Next up…Devising a plan.