Track and Budget Your Expenses Effeciently

Expense tracking and budgeting are essential to fixing your personal finances. By knowing and limiting where your money goes, you won't risk getting short before your next pay check. It will ensure that you will have more than enough money to last you until your next pay day. Expense tracking is especially important for those who use credit cards. This will prevent you from spending more than what you can afford to pay.

Expense Tracking

Tracking and budgeting your expenses can be a tedious and time consuming activity. This is the reason why a lot of people don't do it or give up and stop doing it. A common mistake people make when tracking their expenses is making it too complicated. I will share to you several ways to improve how you can track your expenses and finish it faster.



  •  Record any expense you make immediately. You will most likely forget about it if you postpone on recording it.
  • Use any tool available to accomplish this task. A notebook, a piece of paper or your phone will suffice. What is important is that you will have a traceable record on all of your expenses.
  • Find time to check your recorded expenses at the end of the day. It is easier to recall what you spent a few hours ago compared to what you spent a few days ago.
  • Establish as few income and expense categories as possible. By keeping it simple, you can easily maintain and monitor your expenses.
  • Utilize programs and apps to improve effeciency. Use what is easily accessible and comfortable for you. A spread sheet on a pc or an app on a smart phone will make things faster and easier for you to keep your records and track your expenses.

Budgeting

Establishing a budget can be a bit tricky. A common mistake most people make when establishing a budget is making it too complicated. There are a few methods you can utilize to simplify your budget

The Jar System
The Jar System, from the book The Millionaire Mind by T. Harv Eker simplifies your budget by limiting your budget categories into six. The Jar System consists of six accounts namely Necessities (NEC), Financial Freedom (FF), Long Term Savings (LTS), Education (EDU), Play and Give.


Necessities (NEC) 55%This account is for expenses that you need to live such as Rent, Mortgage, Taxes, Utility Bills, Groceries, Insurance and other necessary expenses.

Play 10%The purpose of this jar is to nurture yourself. You can splurge on anything your heart desires. You can use thisbto purchase expensive clothes, a massage or a weekend getaway. 

Education (EDU) 10% This is used for self improvement. Expand your knowledge through seminars, books and online courses. Investing in yourself will improve your chances of being successful.

Financial Freedom Account (FFA) 10% This account is used for investing and building
your passive income streams. It should never spent on anything other than for wealth building.

Long Term Savings for Spending (LTSS) 10%. This is used to purchase nice to have items. You can use this to purchase a new big screen tv, a car or for long vacation.

Give 5%  The money in this account is for giving away. Use this money to purchase gifts on birthdays, special occasions and the holidays. You can also share your blessing by donating to your favorite charity.

50-30-20 Rule of Thumb
Another alternative system to budgeting is the 50-30-20 rule of thumb. This was coined by Elizabeth Warren and Amelia Warren Tyagi on their book, All Your Worth: The Ultimate Lifetime Money Plan. The strategy simply divides your net income into three categories. Needs (50%), Wants (30%) and Savings (20%).

Needs (50%)
These are necessary expenses that are essential. This includes rent, essential grocery items, clothing, insurance, tuition fees, and other necessary expenses for young to function properly.

Some expenses might be a need to some and a want for others. A person working in sales needs to spend a lot on phone bills and transportion. A freelance graphic artist doesn't need those to function properly, he would need to spend on a powerful laptop or pc, software and high speed internet connection.

Wants (30%)
Any expense that are not necessary goes to this account. An expnese is deemed unnecessary if you don't need it to function properly. Some expenses such as groceries and clothing can fall in both categories. Buying a whole chicken in the grocery store can be considered a necessity while a gallon of ice cream can be considered a want. A pair of shoes can be considered essential if your old shoes needs to be replaced. It is considered a want if you have several pairs of shoes and you regularly purchase a new pair every month.

Savings (20%)
This account is going to be used for wealth building. You will use this money to invest for your future, but before you start investing you should make sure that you pay off  all your outstanding debts. If you have several debts that needs repaying you can use this account to pay off your debts. Once you are debt free you can start building your nest egg and invest. D
There are several investment instruments you can invest depending on your risk tolerance. Real estate, Forex, Stocks, Bonds and Money Market are a few of the instruments to consider.

Final Thoughts

In order to make expense tracking and budgeting work, it is important that you make it straight and simple. Effecieny is the key to a good budget, find ways to record important details about your expenses at a minimal time. The less time you need to spend recording your expenses the more likely you are going to update it regularly, which in turn is essential to monitor your budget properly.

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