Managing expenses is not easy especially when you have no idea what your real expenses are. To overcome this “ignorance” factor you need to create a spreadsheet with a approximate values of what you think your monthly and then annual expenses are.
You can start with the broad categories.
- Heating, gas lighting,
- Groceries, eating out, shopping
- Medical expenses
- Insurance costs
- Automobile expenses, gasoline, service cost
- Education expenses
- Bank charges, interest expenses
And don’t be afraid to have a lot of details once you have about 20 to 25 line items this is a good place to start. So now you will have a spreadsheet with 20-25 rows and 24 columns – 2 columns for each month – that is one column for the budget and one column for the actuals. Now start filling out the for the budgeted amount – fill these amounts based on your best guess – we will be adjusting these figures as we fill out the actuals later.
Purchase a nice brand new binder to file all your monthly bills and have a separate bin to collect all the smaller invoices before you file them at the end of the month. Use the bin to collect all the little invoices as you might easily lose them as I do most of the time.
Remember that you need to keep all your bank statements, personal loan statements, pay slips, insurance documents, loan documents, credit card statements etc and use a separate binder to file all your other significant bills such as utility bills, telephone, water, cell phone, broadband etc You be happy that you had these all filed neatly when tax times comes around.
Adding it all up
Now at the end of the month you can separate your income and expenditure and start adding it to your spreadsheet. Make sure that you enter all the expenses. Its easy to miss out a few bills so make sure that you go through each bill carefully.
Its not easy to keep track of how much money you carry around in your wallet but using a Iphone App or Android App that has been developed expressly for the purpose of tracking expenses can help you stay ahead and track those expenses that you might otherwise forget.
Its a good idea to enter all the transactions to the App before you go to bed.
I don’t want to recommend a particular App or service as the best as each one has its own strengths so try out a few and see which you like best and also read the reviews for each App that are many free ones supported by advertising and some that allow you to download transactions to your Personal Finance Software. These Apps will ensure that you will be able to keep track of your cash transactions.
Now compare with budget
Now that you are well organized and have all the details of what your actual costs are for the month you can start filling out the actuals column
Now one of four things may happen
- Your actual cost is higher than budget
- The cost is lower than the budget
- You have missed out the expense type
- Or have not incurred that expense type for the month
If your actual expense is significantly higher you may need to increase your budgeted figures – but you don’t need to panic I will tell you how to reduce expense in the next article.
Lucky you! expenses are lower than budget you may not need to do anything or revise budgeted expense downwards for the rest of the year.
If you have missed out an expense type you may insert a row and add a budgeted figure for the rest of the year if you expect the expense to recur. Or call it one off expense in which case you don’t need to budget for it on the future months.
If you have not incurred that expense type for the month you can still keep the row if the expense is expected in the following months.
Deviation from budget
Now you need to insert a new column called the surplus/deficit column – deduct the actual expense from the budget and arrive at the surplus or deficit.
If the total of the Surplus and deficit column is a positive figure your “in the black” but otherwise don’t panic I can tell you some ways to reduce your expenses.