Budgeting: How to Track Expenses in 3 Easy Steps

Shakira
Post : January 28, 2023

Managing your finances is crucial, and tracking your expenses is essential. However, it can be difficult for beginners to get started, as they may need to gain knowledge or experience with budgeting. This can lead to overspending or difficulty keeping track of expenses.

As Benjamin Franklin wisely stated, "Beware of little expenses; a small leak will sink a great ship."

Keeping track of your expenses can reveal your spending patterns, identify unnecessary costs, and help you understand the value of money. It takes time, effort, and practice to master this skill, but it is worth the investment.

To get started, try following these three simple steps:

  1. Begin by recording all of your expenses, no matter how small.
  2. Review your expenses regularly to identify patterns and areas where you can cut back.
  3. Make a budget and stick to it, adjusting as needed.

Whether you're managing a household or a business, tracking your expenses is important in achieving financial stability. With time and practice, you can gain a better understanding of your spending habits and take control of your finances.

Estimate Your Budget

Budgeting is creating a spending plan based on your income and expenses. The goal of budgeting is to be mindful of your spending and make sure you're using your money in a way that aligns with your financial goals. 

Dave Ramsey says, "A budget tells your money where to go instead of wondering where it went."

To start budgeting, you'll first need to determine how often you get paid - whether it's weekly or monthly. Next, you'll need to determine your income, including how much you make, how you make it, and how often you receive it.

Remember that budgeting is a flexible process, and you may need to adapt your budget as your circumstances change. Factors that can affect your budget include: 

  • Your income 
  • Your family size 
  • Your occupation
  • Your family goals

You can create a budget by writing it out by hand, working on a spreadsheet, or using budgeting apps.

Budgeting can have many benefits, including helping you pay your bills on time, establishing an emergency fund, saving you from significant expenses, and reducing stress. It's not just for financially unstable people, but it's also beneficial for anyone who wants to control their finances. 

Budgeting is a key step in managing your short-term and long-term expenses.

Track as You Spend

Keeping track of your expenses while on the go can be challenging, but there are ways to make it easier. 

One effective method is collecting all of your bills, whether physical receipts or electronic ones. If there isn't a bill for a particular cost, you can note it on your phone and then track it later.

When it comes to managing your expenses, it's helpful to classify them into two categories: needs and wants.

Needs are essential expenses that are inflexible and cannot be changed, such as rent, debt payments, medical expenses, transportation, utilities, groceries, and child care. 

These typically make up about 50% of your spending. In a business setting, necessary expenses are required for the business's operation and success.

Conversely, wants are variable expenses that account for about 30% of your spending. This can include clothes, jewellery, self-care treats, home decor, and more. 

These expenses are not essential but are common and acceptable in a business setting. They are flexible and can be adjusted as needed. It's important to monitor these expenses and note how much you're likely to spend on them.

In addition to fixed and variable expenses, saving some money for an emergency fund and other savings is important. This should make up about 20% of your income.

Tracking and classifying your expenses can help you regulate spending and make saving easier. Monitoring your expenses daily will also make you less likely to forget anything. 

There are also apps available that can connect to your bank account and make tracking your transactions and budget easy.

Build and Stick to The Budget

Once you have categorised your expenses, it's time to build your budget by deciding how much to allocate for each category. Compare this to your net income and make adjustments as necessary. This will help you avoid overspending and stay within your means.

For example, deduct that amount from your housing loan category when you pay your electricity bill. Remember, minor cuts in expenses can add up to significant savings over time.

When creating your budget, you must be mindful of spending and avoid unnecessary purchases. Before making any purchase, consider whether it is worth the price and aligns with your financial goals.

Sticking to a budget can be challenging, but staying committed to it is important. If you are tempted to make an unplanned purchase, take a moment to evaluate whether it is indispensable.

It's also important to review your budget regularly to ensure that you are on track. And remember, a small reward for sticking to your monthly budget can be a great motivation. With a budget in place, you'll be better equipped to achieve your financial goals and thrive financially.

Conclusion

Tracking your expenses and budgeting may seem tedious, but the benefits it brings to your financial well-being are worth the effort. Consistency is key when it comes to seeing real results, so make it a habit to stick to your budget. 

By dedicating time and energy to managing your finances, you'll be able to reach your financial goals and thrive.

 

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