Money is an essential resource. It is our only means of living a quality life. Every day we work hard by shedding our blood, sweat, and tears. Earning money involves a lot of hard work. But every month we earn a paycheck that helps us to meet all our expenses. Spending is easy till we have money to spare.
Sometimes we even forget the hard work involved in earning every penny. Overspending is the greatest weakness of every consumer. It breeds on our monthly monetary resources. Hence, to avoid the exhaustion of our finances, it is necessary to manage our funds well.
Individuals should devise a plan called a budget to control their expenses. This is called budgeting. Consumers should make expense tracking a daily activity. This will safeguard their monthly cash reserves. Unless these expenses are managed, we will always encounter problems every day.
If you are looking forward to optimizing the way you spend without compromising on your lifestyle, then this article is for you. After reading this article, the reader will gain insight into how to manage day-to-day expenses. What is budgeting?
The factors involved in creating a successful budget. What is expense tracking? How to track expenses? Why should impulsive spending be avoided? How to budget and track expenses? The benefits of budgeting and tracking expenses. These are some of the topics that will be covered in this article.
What Is Budgeting?
Budgeting is a process of strategizing a way to spend the money in hand. A budget is a plan that individuals follow before spending the cash. This is a very efficient method that assists every individual to spend money. This strategy will help individuals to estimate if the monthly income will suffice for their expenses.
If the result is negative, then they can optimize their monetary funds in advance. This involves making a budget for the entire expenses to be covered in the month or for a particular period. This planning process can help individuals to prioritize their expenses. This will also avoid unnecessary expenditures.
Benefits Of Budgeting And Tracking Expenses
The benefits of budgeting and tracking expense are
1. Gives You Control Over Your Money
By implementing a budget, every individual can control their money. Instead of the money controlling them. This can help them to prevent spontaneous spending and enhance savings. Budgeting can provide relief to individuals from any stress. This can arise from last-minute adjustment with the remaining resources.
2. The Focus On Financial Goals Is Persistent
By tracing the finances, unnecessary expenses can be curtailed. Thus, individuals can focus on investing and saving monetary resources towards achieving their financial goals.
3. Makes You Aware Of What Is Going On With Your Money
By making a budget, individuals are in a better position to keep a track of how much money is generated per month? Where does the money go, and how is it utilized for every expenditure? This way, every individual will be able to answer about the whereabouts of the spent money. In this way, the funds can be allocated as per requirement, and debts can be lowered. Investments, savings, and financial goals will be easily achievable.
4. Helps Organize Spending And Savings
The monthly income should always be divided into categories for various expenditures and savings. This will enable individuals to become aware of the use of money for various expenditures. Thus, they will be open to adjustments and will be able to organize their bills, invoices, receipts, and financial statements, thereby saving a lot of time and effort.
5. Helps Individuals To Decide The Amount Of money They Will Require
Once individuals are used to making a monthly budget, then they will easily be able to predict the number of funds they will require in advance.
6. Saving For Expected And Unexpected Costs Will Be Enhanced
Once the money for covering the expenses in the entire month is covered, the savings can be used for unexpected costs.
7. Enables Communication With Family Members About The Money
The regular discussion with family members regarding the monthly budget fortifies teamwork. This can help the whole family to achieve the financial goals as a team. As the budget is well communicated with the other conflicts and other personal differences will be minimal.
8. Warns For Potential Problems
By creating a budget on a monthly basis, individuals will get an idea about the sustainability of their monetary resources. They will be able to predict if any problems may arise in the future. If so, then they can make adjustments in advance before the problem intensifies.
9. Determines Whether The Individual Will Be Able To Take A Debt
As the expenses are planned, this provides an insight into whether the individual can afford to take a debt shortly. Debts should be the last resort of every individual. If it mismanages, they can cause a lot of stress to the individuals and their families.
10. Produces Extra Money
As budgeting enhances the savings and eliminates unnecessary expenses, this leads to the production of extra money.
11. Individuals Will Have Better Insight Into Their Spending Habits
Many individuals may have a vague idea about their monthly expenses. As most of them spend mindlessly, budgeting will provide them the discipline they need. Once the habit of spending money with a budget in mind is cultivated it will become a monthly routine.
12. Intensifies The Relationship With The Spouse
In some households, the husband may be the sole bread-winner of the families, or else both the husband and the wife may be the earning members of the family. Thus, it is important that both of them collectively decide on the monthly budget. In this manner, both of them will be looking into household expenses, thereby making a good team.
13. Less Anxious About Money
As the monthly budget is followed, there is no need to worry about the future as everything is pre-planned. With the cash reserves divided to meet various expenses in the month, including the unexpected cost, there will be less anxiety among individuals.
14. It Helps To Prepare For Emergencies
The budget should be prepared by keeping the emergency funds in mind. A part of the savings generated should be contributed towards these funds, including the expenses of at least 3 to 6 months altogether.
15. It Helps Individuals To Overcome Bad Impulsive Habits
Once a budget is set, individuals have to follow the budget to meet the monthly expenses. This means there is no room for impulsive spending.
16. It Leads To Happy Retirement Life
The money from the monthly budget should be divided into various categories. These categories should include savings, investments, and emergency funds apart from current expenses. The monthly investments towards the retirement funds will generate sufficient corpus post-retirement. This will provide a happy life to the individual’s post-retirement.
17. Maintaining Financial Control
When the expenses are tracked, the individual can easily control his finances. Control over finances is not easy; it takes a lot of discipline, planning, and precise thinking. As individuals gain such control, they will be able to determine how the money they can spend, how much money is saved in the bank account, etc.
18. Makes Every Individual Accountable
Tracking the expense enables individuals to make plans for savings, investing, generating wealth, and get rid of any pending debts. In the long run tracking expense helps individuals to keep their focus on financial goals and prevent them from becoming broke.
19. Tracking Expenses Means Tracking Financial Progress
As the day-to-day expenses are tracked this also helps individuals to keep a track of their financial progress. This will keep individuals motivated to achieve more goals.
20. Improves Financial Security
If individuals are not aware of their monetary resources, then they may not be aware of any possible frauds or potential threats that are associated with these funds. Thus, with constant tracking, the financial security of every individual will improve as these funds will be under the radar of the owner.
21. Reduces Financial Stress
Budgeting and expense tracking is done to keep a check on the various expenses that are to be covered. Once the finances are managed well, by good savings, clearing pending debts, making investments, having emergency funds for an unexpected expense, there is nothing left to stress about.
22. Staying Focused
Regularly budgeting and tracking the expenses keep individuals focused on their financial well-being. Tracking daily may seem like an insignificant task. But focusing on the future benefits of tracking can trigger the focus on current financial goals.
Factors Involved In Creating A Successful Budget
Various factors help individuals in making the right budget. This will benefit them by achieving good financial health.
These factors are stated as follows.
1. Income Source
The main focus of any budget is the source of income and the amount of income earned. This is the key to creating a good budget. The figures from this factor enable the individuals to plan their expenses. These expenses should be within the limits of the income earned. If these expenses exceed the income figures, then it signifies a flawed budget.
2. Fixed Expenses
The fixed expenses do not vary. These can be easily added to calculate the monthly budget.
3. Variable Expenses
These expenses vary from time to time, but they are not fixed. Thus, individuals will have to calculate the budget by assuming an approximate amount.
4. One-Time Purchases
These are unexpected purchases that may be necessary and cannot be avoided. The monthly budget should all have room for such expenses. First, the budget should be made for fixed and variable expenses. Then the one-time purchases should accommodate a slot in the monthly budget.
What Is Expense Tracking?
Tracking the expenses is an efficient way of ensuring that the budget set is followed. These expenses should be tracked daily to maintain a good track record. The bills, invoices, receipts, e-receipts, and bills are tools that assist in tracking. Hence, they should be collected and kept in order every month. If the current budget is not helping the individual to meet the requirements, then a new budget should be implemented. Or else, he could continue with the same strategy.
How To Track Expenses?
Expense tracking is crucial. Here are a few pointers to get started with tracking.
Time needed 1 minute
1. Open A New Bank Account
From a business perspective, a businessman should always separate the funds, including those generated through the business from his finances. If these funds are disorganized, then it can cause a financial disaster.
2. Keep The Receipts And Bills For Reference
Keeping the bills and the receipts of recent expenses in order simplifies expense tracking.
3. Know what is tax-deductible
Several business expenses are liable for tax deductions. These expenses can be tracked to enjoy the benefits of deductions.
Why Is It Necessary To Avoid impulsive Spending?
Spontaneous spending occurs when individuals spend money without a proper budget and tracking. This leads to individuals living a financially dependent life. There will be severe effects on the financial status of those who depend on acute salary. Some of the results are.
When the spending is spontaneous, there is no indicator to keep track of the daily expenses. Therefore, this leads to the overspending of the monthly resources. This is not a good practice in the long run.
ii. Unlimited Access
If there is no budget, then individuals will have unlimited access to money. This is another unhealthy practice that can exhaust the monthly funds before time.
iii. Unrealized Financial Goals
Each of us has different financial goals. Some may be planning to start a family. Some may think of purchasing a new house. Some may have different educational goals for themselves or their children. Depending on these goals’ individuals save and invest their money to accomplish them. But if they don’t have any financial goals, this can lead to unplanned budgeting and expenditures.
How To Budget And Track Expenses?
The simplest way to get started is by using google sheets. Microsoft Excel is also great software to track expenses. This software can be used to make a budget plan for the entire month. Or a time duration as per the convenience of the entities. Expense tracking can be achieved by several mobile apps prevalent today. Apart from this, individuals can systematically budget their funds as follows.
- 30% should be invested. From the monthly income of the family, 30% of this should be invested in any investment tool.
- 70% should be used to cover household expenses. The remaining amount from the monthly income should be used for various expenses that cannot be avoided.
- Reinvest passive income. The passive income generated from the invested money or other sources should be reinvested to gain higher returns. This can enable individuals to become financially independent more easily.
Initially, many find creating a budget a tedious and lethargic task. Tracking the expenses may further be annoying daily. But patience is the key to success. As budgeting and expense tracking begins showing its powers, individuals will inculcate this habit regularly. Budgeting is not an easy process. It involves a lot of planning and critical thinking to foresee future expenses.
Moreover, individuals will have to assume the variable expenses as this can give them a vague idea about the total monthly costs. Although the efforts are more, the benefits of proper budgeting and expense tracking are worth the hard work. The short-term execution of budget and tracking will help achieve the long-term goals of every individual.
Budgeting should be done consciously. As consumers, we may have impulsive spending habits. But budgeting will not help us get rid of this practice. It can only provide us with a goal and keep us focused on achieving it. It is our responsibility to overcome impulsive spending and enhance our savings, fortify our emergency reserves, and intensify the investments.
Budgeting and tracking expenses are good habits for every individuals’ debt, those retiring early, have limited monthly income, and those planning to make the best use of money in hand. So, let us pledge to work towards attaining all our financial goals by giving up spontaneous spending.