Tracing your Spending
In Part I of this report, we covered your financial goals and set the amount you need to save to be able to accomplish them within a certain time period. We also covered how you can trace where your money went. Knowing exactly where you are spending every dollar by writing down all your purchases is vital to getting an honest reality check of your finances. By doing this for at least a month—you can do it for two months to get a more comprehensive picture—you will be able to figure out just how much money you are spending for the unnecessary things. Once you know this, it is easier to determine the areas where you need to trim down on your expenses or cut them off entirely so you can put more money towards your priorities.
Once you have the figures for your expenses for one month, it’s time for you to organize your expenditures. There are many financial worksheets online that you can fill out. You may also use your own. Basically, a worksheet is composed of two areas: Your income and outflows. The income, obviously, refers to the money you make each month like your salary and bonuses and money earned from second or third jobs you may be holding. This part also includes any interest earned on savings accounts, alimony (if you are receiving any), and scholarships (if you are a recipient). Make sure that you record your gross income or the money you make before tax.
The outflow portion represents your expenses each month. Include in this portion your taxes, mortgage or rent amount, retirement contributions, food and groceries, utilities (gas, electricity and water), communications (landline, mobile phone, and Internet), clothing, laundry, eating out, nightlife, gasoline and car repair/maintenance, fare for public transportation, insurances (health, life, long-term care, homeowners, disability, and auto insurance), debts (student loans, car loan, and personal loan), childcare, tuition and other school expenses, copays and deductibles, home maintenance/repairs, subscriptions (cable, gyms, newspaper/magazine, etc.), hobbies, pets/pet care expenses, vacations, and hobbies. Be as specific as much as possible. If there are other expenses that don’t fit in with the other categories, put them under miscellaneous.
For expenses which don’t really happen each month, like car repairs, get previous receipts and try to come up with a monthly average. Use your ATMs, credit card bills, and other receipts for other stuff so you can get an idea as to how much you need to allocate to these expenses per month.
The next step is where you’ll find out if you’ve been overspending or not. From your total income, subtract the total outflow or expenses. You are clearly spending more than you should if you arrive at a negative number. Now that you know this, what can you do about it?
Perhaps the category for eating out and nightlife is glaring at you accusingly. If you constantly have your lunches out, perhaps you can save more if you brown bag them.
Instead of going out with friends on weekends, perhaps you can scale back and just have these dates once or twice a month. Are you really using your gym membership to the fullest? If not, you can just exercise at home. What about your other subscriptions? If you barely use them, unsubscribe. How much money do you spend (cash or charged to your credit card) for shopping for items that you barely even remember afterwards? Are you constantly updated on the latest fashion trends? Well, you don’t really need to be for as long as you have the so-called staples in your wardrobe like the little black dress, black pants, jeans, jacket, and white shirt. You don’t also have to shop for designer shoes and clothing all the time. There are good finds in department stores for as long as you don’t care about labels.
Once you have already determined where you can cut back, go back to your worksheet and redo it, this time putting in the new figures of the areas where you intend to scale back. Then subtract the total expenses again from your total income again. By this time, you should already have a positive figure. You can now see the money you have to save for your financial goals. Depending on how much you can put into your savings, you will have to do some adjustments, either in the amount of the goals you want to attain or the number of years you want to accomplish them.
Other related info you might be interested in:
No comments:
Post a Comment