Staying on top of your finances can be daunting. Whether you’re just starting out in your career or you’re in your prime earning years, keeping track of your finances is important! Here are four tips to help you get started:
Monitor All of Your Finances
Monitoring all income and spending is the only way you can understand your spending patterns. Every penny you receive that goes into your account, as well as every penny you spend, should be tracked.
When you start to track your spending, create categories of expenses to use later in analyzing your money habits. Create groups such as:
- Deposits (paychecks and other income)
- Housing (rent or mortgage)
- Automotive (car payment, gas, maintenance, and repairs)
- Utilities (electricity, gas, water, phone)
- Health care
- Pet care (food, grooming, boarding, vet bills)
- Household expenses (maintenance and repair, including yard)
- Personal expenses
- Entertainment (dining out, movies, games, and other entertainment)
Write down every transaction, along with the date, categories, and specific labels, like the name of the grocery store or payor (where the deposited money came from). Record each transaction at the time it occurs. Do not tell yourself you will remember.
Make sure to write down all spending on debit and credit cards. If you don’t track debit card use, it’s easy to create overdrafts.
Stick to Your Budget
Once you have an idea of how much income you bring in every month, as well as how much you spend on each category, you can create a budget.
- Note your fixed expenses like your rent, mortgage, mobile phone, student loan, and car payments.
- Note expenses that vary month to month like your utility bills.
- Determine how much you spend on groceries, gas, and household and pet expenses from month to month.
- Add up your expenses and deduct that number from your monthly income.
If you consistently overspend each month, identify where. Determine spending items that you can adjust or eliminate. Eating out, even if it’s fast food, can get expensive in a hurry. When grocery shopping, become a smart shopper. Take advantage of sales and seasonal items.
Decide What to Do with Money Left Over
Keeping track of your finances isn’t just about the money you’re spending, but what you have leftover. Hopefully, at the end of the month, you have something left over. Make a thoughtful and deliberate decision about what to do with that money.
- You can roll it over to the next month to help pay for groceries and other necessities.
- You can put it in savings for future emergencies or upcoming large bills.
The reason you make a deliberate choice is so you are thinking ahead about what you may need. You have goals and responsibilities to fulfill. Reminding yourself of that every month helps you keep frivolous spending in check.
Analyze Finances Monthly
At the end of every month, take a look at your finances to see where you can improve your spending habits or where you might be able to save. Identify areas where you have problems that cause you to go over budget.
You can keep all your records in a ledger, notebook, or register. There are also inexpensive software packages and applications that can help you maintain accuracy as well as build a visual image of your spending habits.
If you bank online, you may be able to set up categories of income and spending within the banking app.
Monitoring your finances may not sound like fun, but it puts you in total control of your money. Measure what you have, then figure out what to fix. Rinse and repeat to keep your finances on track.
Jayson Mullin is a partner at Top Tax Defenders, a tax resolution company with over 30 years of experience working with the IRS to aggressively help clients with any type of tax relief problems. They also regularly publish articles about tax help on their blog.