If you have tried tracking your expenses before then you know how much of a hassle it can be. It is often stated that the key to financial stability is being able to successfully track your expenses and account for all your income and expenditure. This is often equated to budgeting. If you have read our previous posts then you know that at the Savvy Worker, we are big on budgeting, saving, and investing. If you tried budgeting and failed before, you should not be discouraged. We have all, at one point in our lives, tried one money management technique or the other. Some lucky people often master these techniques on the first try, while most of us often have to try several times before we can properly master one technique or the other.
Before you begin budgeting you should have a clear understanding of why it is important to track your expenses. Keeping track of your expenses is important for many reasons including having a clear idea of your income and expenses thereby making it easier for you to know how you can efficiently divide your income, tracking expenses also helps you understand your spending habits which can help you know the days where you spend more than you should and the things that you should be putting on and tracking expenses with help you improve on money management. These reasons are important to budgeting as they underpin the principles of money management, savings, and investment.
It is important to note that budgeting on its own will not help you solve all of your money problems. If you have come across personal finance books and other approaches you will always be advised to create a budgeting plan as a first step of having a clear way of accounting for your income and expenses. As such, you should recognize budgeting as the first step in your plan to secure your financial health.
So how can you track your expenses and never fail at budgeting again? This article identifies several steps that are extremely crucial in creating your expenses and encompass several elements and items that will help you create a clear and concise plan in budgeting. These budgeting tips are for beginners and experienced budgeters.
Why do people fail at budgeting?
To be able to succeed at budgeting you need to understand why people fail at budgeting. Several reasons have been determined as key causes that can fail an individual to stick to a budget. The first reason is that most people often do not create an accurate record of their past spending habits. You need to understand that our budget is a way of keeping your habit in check so if you do not create an accurate record of how you have been spending your money in the past then you will fail at budgeting. Do not look at a budget as a way of self-criticism but as a tool of getting rid of destructive spending habits. As such, when you’re creating a budget make sure that you created the totality of your past and existing spending habits and outline all your income sources. The second reason why people fail at budgeting is that they fail at creating well-defined goals that are attainable. You need to be able to create well-defined goals that accurately capture your income and spending habits. For instance, creating a goal that you need to become more financially stable is vague and will lead to failure. Creating well-defined and accurate goals requires pre-existing knowledge of goal creation. I often like to use the SMART goal creation system.
This will ensure that you can attain the goals. The Specific criteria in the smart goal creation system require you to make your goals specific and narrow for more effective planning. You can adhere to this criterion by asking yourself what do you want to do? The Measurable criterion can be created by asking yourself how will you know when you have reached your goal? The achievable goal can be created by asking yourself if the goal in your power to accomplish it? The realistic goal can be achieved by asking yourself can you realistically achieve the goal with your current spending and income habits? The timely goal can be achieved by asking yourself when exactly do you want to accomplish the goal?
You will be able to improve your chances of succeeding by adhering to this criterion when creating your budget.
Create a Budget
The first step in tracking expenses is creating a formal budget. You are probably tired of hearing that budgeting will help you solve all your money problems. You might also have the perception that budgeting will constrict your leaving and make you adhere to a plan that affects the quality of your life. However, this is not true. Budgeting helps you account for all your income and ensure that you always pay your bill on time. It also helps you attribute money to other financial well-being elements like investments and savings. The first step to creating a budget is to determine all your income and expenses. If you are a beginner budgeter then it is imperative that you use external help or a budgeting application to ensure that your app adheres to financial principles that are aimed at helping you improve your financial status. Several budgeting applications have been created to help different types of people with different types of incomes. You can check out our list of the best budgeting apps of 2021 both offering free and paid plans that can help you create a budget that is tailored to your income and futuristic savings goals. If you do not want to use a budgeting application then you can also download the hundreds of thousands of free spreadsheets that are available online, particularly on personal finance blogs. You can also decide to use personal finance books that will help you create a budgeting plan based on your needs.
The most important thing to understand while using a budgeting application or spreadsheet is that not everybody is perfect at budgeting. If you find yourself failing at the first week or month and not adhering to your allocated income or expenditure tracker then you should understand that this is part of the learning process. Here at the Savvy Worker, we have a motto that we live by that says that we do not fail, we either succeed or gain experience. If you find yourself in such a predicament pick yourself up and continue adhering to the monthly plan or weekly one that you have created on your budgeting application or spreadsheet.
Select a Spending Tracker
If you just use a budgeting application then you know it comes with a spending tracker and goal creation tool. However, if you have not chosen a budget application to create your budgeting plan you need to select an automatic spending tracker. Spending trackers will enable you to understand your expenses in totality. In budgeting apps, the spending trackers often evaluate your income against your expenses and provide recommendations on how you can efficiently divide your earnings to cover the bills. You can choose to ever use the automatic spending trackers that are integrated into budgeting applications or download worksheets that provide you with a manual way of managing your expenses. Most of these worksheets operate on a basic principle. You will have to list all your expenses at the beginning of the month and systematically write them off once you pay them. While using manual systems like printable worksheets can be tedious they also come with an accountability measure. Because once you develop a habit of always updating your expenditures you’ll always feel compelled to ensure that once you pay the bill it is written off in your manual system. For those who chose to use the automatic spending trackers that come with budgeting applications then you know that the spending tracker that automatically ingrained in your smartphone. As such will be regularly notified when you need to pay your bill and once you’ve made the payment. Some of these automatic spending trackers are also linked to your bank account and automatically update your account according to the bills paid. This nifty feature is particularly useful for those who are looking for a budgeting application that helps them save and increase the disposable income that can be used for investments and other futuristic purposes.
You can also use automatic or manual spending trackers to budget for big expenses. For instance, if you want to buy a car or save towards your house you can use the automatic or manual spending trackers to round off your payments and save the excess towards your savings goal. The key to selecting a good spending tracker is understanding your need in totality. For example, if you are paid bi-weekly then you need to select the spending tracker that allows you to update your expenses with the same regularity. You can also use several other spending trackers to determine which spending tracker is best suited for your needs. Some of these criteria include if you live in a single income household or multiple income households, the size of your household, your investment and savings goals, your choice of spending tracker that is if you ever need an automatic or manual one depending on the level of comfortability, if you’re supporting any other individual, and if you have commitments that exist outside of the regular bill and income structure. Online budgeting tools are also useful when selecting a spending tracker.
Categorize and Use Spending Trackers
If you want to succeed like budgeting and never feel again then you also have to categorize your spending trackers. Categorizing expanding trackers is based on the idea that most people have different categories of bills. For instance, you might be the sole provider in your household as such you need to categorize your spending tracker according to your household bills, your mortgages, your car gas bill, etc. Categorizing your spending trackers enables you to become more organized and detailed when it comes to creating a budget and adhering to it. This is included in this list because you never feel like budgeting once you can accurately account for all your spending habits in the various accounts. It is important to note that the categorization of the spending tracker is only needed for those who have decided to use the manual spending tracker system where you have to print out printable spending trackers. For those who are using budget applications, you will find that most of these applications come with the categorization of bills which makes it easier to determine how to allocate your income. Categorization of spending trackers is also important because it enables you to accurately define your spending habits. You will be able to know where you spend most of your money or where you spend the rest of your money and how you can efficiently restructure your spending habits to fit your income and futuristic investment and savings goals. Budgeting for beginners can be difficult if you do not understand how to select the best tracker that meets your needs. As such, you should focus on choosing a budgeting tool or process that you are familiar with or have basic knowledge on as there are several budgeting categories that come with an array of spending trackers.
Track Changes/Set Weekly Check-Ins
The last part about creating a budget and never failing at it is tracking your changes and setting periodic goals. Creating periodic check-ins is important in understanding how well you’re adhering to your budget. We recommend creating weekly check-ins regardless of the regularity of your paycheck because of the possibility of spontaneous spending. Let’s say for example you decide to get take out in the middle of the week you need to be able to efficiently and competently account for this spontaneous expense to be able to have a clear picture of your spending habits. Accurately accounting for your spending habits and your income will help you bolster your budgeting skills and ensure that you never fail at creating a budget again. Once you have completed all the aforementioned steps then you can begin adhering to your budgeting plan and ensuring that you hold yourself accountable because you are the only one who has the power to either alleviate or deteriorate your financial well-being.
Budgeting can be tedious and strict particularly for individuals who are not used to account for every single penny that they spend. You might also have come across people who have failed at budgeting and convinced yourself that you two may not be able to stick to such formal ways of accounting for your income and expenses. However, a clear and defined understanding of budgeting in this age and time is integral in ensuring that you never fail at budgeting. You should understand that your past experiences do not determine your future. If you tried budgeting once before and failed then take that as a learning curve and improve upon your habits.