For something that has such a big impact on our lives, it can often be hard to get a firm grasp of our own financial situation. Bills, debts, car payments, mortgage, rent, groceries, tuition: there are a hundred and one places our money goes, and it can seem impossible to keep track of them.
But if you’re serious about improving your financial situation in the long-term like many of us are, then it’s imperative that you have a clear perspective of what’s going on with your money. How do you achieve that, though? Here your beginner’s guide to keeping a more watchful eye on your money.
The saying goes that it’s impossible to know where you’re going if you don’t know where you’ve been, right? The first step to getting a clear perspective of your finances is to track your past spending. This means going month by month through your bank statements and breaking your expenses into categories.
If this process sounds tedious, you can always hook your bank account up to an expense tracking program. Mint is the reigning king of expense tracking apps, but there’s a multitude of other financial tracking programs that are just as effective. They’ll track each individual purchase or expense you’ve made, sort them into categories and help you spot spending trends.
Speaking of which...
There’s no point in tracking individual expenses if you can’t map them into individual spending trends. You can use whatever categories make sense for you, but it is important to delineate fixed expenses (food, health insurance, rent, etc.) from discretionary spending (entertainment, dining out, shopping, travel). Knowing the distinction between the two will help you make financial decisions in the future and better handle your money.
For example, if you want to put more money into savings, you’ll know exactly how much you’ll have to cut back non-essential spending to make it happen. Or for another example, it will give you a clearer image of how fast you can pay off a credit card or installment loans.
Now that you have a clearer image of where you’ve been, it’s time to look to the future and make sure you don’t lapse back into a fuzzy understanding of what’s happening with your money. The best way to do this is set a recurring date every month when you take an hour or two to go over your finances. Log your spending for the last month if you need to, or figure out why you seem to be spending more on groceries than you budgeted for.
And if you truly want to prevent your finances from slipping out of your control again, you can be proactive and create a working budget for yourself moving forward. A well-crafted budget is a powerful tool for controlling your finances and achieving your long-term goals.