This is my personal favourite. I have always tracked my accounts. I have a stack of old notebooks with monthly expenditure going back many years. More recently I have followed Harv Ekers 6 Jars plan.
Budgeting and tracking your spending is all about planning your financial present and future. It’s among the most essential steps that you should take for it is a fundamental aspect of your financial planning. Such planning entails establishing or setting specific goals – whether your goals are to pay off your debts or to save enough money. You basically need to fully understand your habits of spending.
The real importance of tracking your habits of spending and budgeting is about living within the limit of your paycheck and sticking with your spending goals.
This can prove to be extremely rewarding, both financially and emotionally.
Make a Budget Plan and Track Your Spending Habits
A good budget plan is created to last all through the years. Yes, you can actually budget for a short term basis to get your way through challenging times, but the most effective budget plans will definitely take you and your family out of big financial trouble and of course, to your financial goals. Budgeting is one of the most essential aspects of planning for your future indeed.
Creating a budget plan is at the core of your financial freedom. If you don’t have such a plan to budget or track your spending, chance is things might get out of control. Once this situation happens, it’s much harder for you to get things back on their track than if you’d followed a budget plan in the first place.
But how one makes a budget? Where can you begin your budgeting process?
Create a list of your income and expenses
The very first step that you should do in making a budget plan is to create a list. First, list your incomes. It’s essential to include all income sources. Even the smallest interest checks should be included as well. These little things definitely add up, and to have a specific picture of the income is very critical.
Next, list all the regular bills.
These may include your mortgage, home and car insurance, water, electric, internet, phone, and other monthly bills. List when these bills are due as well as how much they cost. If it quite fluctuates, write average amounts.
After listing the regular bills, you must account for other kinds of expenses. This means expenses like gas, groceries, clothes, personal items, haircuts, among others. It’s also essential that you budget your fun things such as movies, eating out, stamp collecting, or any other variables. If you do not budget your money for these things, then you’ll become disillusioned eventually giving up on the budget.
Find Areas That You Can Actually Cut Back A Bit
Now that you’ve listed your income and expenses. Take the total expenses; subtract this from the total income. The difference will be an amount which you’re under or over budget.
If you’re over the budget, this means that you’re spending way more than what you make. This is not ideal. For most, that overspend may end up on credit cards. Then you’re paying interest and this isn’t actually necessary. You should always avoid using credit cards in order to supplement your income.
Take the amount that’s over; see where you can try to cut back from your budget. Sometimes, this could mean making a hard choice and you may need to give up something. But at the end, the reward could be worth it.
While some think that a budget plan is a constraint, it’s giving you the freedom from worry and stress from finances.