To achieve your financial goals, you need to know how much you earn and how much you spend.
Tracking your money is one of the most important personal financial habits you can develop.
For someone who is just stepping into the world of personal finance, you would have one key question, “what does it mean to track my money?”
Tracking your money is essential if you want to understand your financial habits and make changes to them. It can help you realize how your money comes in and goes out. It also helps you realize when you need to minimize your spending, so you don’t get financially crippled.
Many people track their money using a spreadsheet or budgeting app, while others prefer to use a hand-written expense tracker.
They all give the same result at the end of the day. The most important thing is to do the tracking.
Here are steps to take to get you started.
- Planning with your income: To be able to track your expenses you would have to start with knowing the amount of money you are willing to work with. You need to first calculate your monthly income, this is easier for salary earners than or people who are self-employed. You need to calculate what your salary or your monthly profit is, then start with 90% of that amount. Now that you have the first step taken care of let’s move on
- Create a Zero-Based Budget: of all steps this requires the most amount of work and attention, creating a zero based budget is the process of giving every kobo you of your income a specific purpose. You would have to allocate every single amount of your income to specific budgeting categories and subtract them from your income until you are left with zero.
This simply means after budgeting your monthly income, you would subtract the amount you plan to give out, the amount you plan to save, the amount you plan to spend on food, clothing and any other expenses for the whole month, until you have no money left in the budget. This is good because it helps you know where you stand, and whether you are spending too much on irrelevant things or not.
- Daily logging of expenses: This means doing an account of your daily expenses and deducting it from the main monthly budget. This would help you keep track. If you have a well detailed and organised budget it would make it easier. Make it a routine and it would not seem difficult anymore.
- Keep track of your money: Whenever you make extra money, add it to your budget, you don’t have to spread it into every category of the budget, you can simply add it to your savings, or any category you deem fit.
The purpose of tracking your expenses is for you to be in the know of how much you make and how much you spend, and those extra incomes are also part of it.
- Improve on your spending: Tracking your expenses is not just about knowing how much you earn and how much you spend, it is also an exercise that helps you to improve on areas that you are over doing or not doing enough.
Most people spend their money thoughtlessly, and at the end of the year, they regret that they haven’t saved enough. This process would help you spend your money wisely.
Follow these steps religiously and you would have a healthy finance system and possibly, financial stability.
An interactive online community dedicated to women. Follow @thewcommunity on social media for your favourite lifestyle updates.