When most people hear the word “budget” they cringe – I know I do. That’s because when financial experts say to set up a household budget, nobody knows where to begin. Before you can set up a budget, you have to know how much is being spent and on what. If you don’t know how much you’re spending every month, you can’t improve your financial situation. No one spends their money thinking they’re wasting it, but at the end of the month, a lot of people end up without any money saved and they have no clear idea of where it went and why.
Tracking household expenses isn’t about writing down every single penny you spend. Tracking household expenses is grouping your past spending into a few meaningful categories to get an overall sense of where your money has gone over the last 3,6 or 12 months.
Before you can budget or redirect resources into your savings account, you have to know how much you’re spending and on what. The only way to find this out, is to track your spending.
How to track household expenses…
- Make it easy to get the information: Tracking your expenses is so much easier if you have just one checking account and one credit card. Whatever you can do to consolidate your accounts will pay off big time. Not only will you have an easier time tracking your expenses with one checking account and one credit card but you will save money on your banking and credit card fees. Bottom line: The easier it is to get to your spending information (whether it be bank statements, credit card statements or your check register) the easier it is to track, and the more likely you are to actually track it.
- Put expenses in buckets or categories the way they’re purchased: When you put things in categories based on how you buy them (say for example, groceries and cleaning supplies at the same store), it’s going to be that much easier to get the information to divide it into meaningful groups. Bottom line: all spending has to be put in a category and it doesn’t necessarily matter which one it goes into as long as you’re consistent and it’s captured somewhere.
- Don’t get hung up on details – yet: By limiting your expense categories to a few (but meaningful and useful ones), you can more easily and quickly get your arms around your spending, without getting all twisted up in the details. (It helps me to write down the categories so I can refer back to them.) Because I like to keep things simple, I have limited our spending categories to 5 – FAITH (food, apparel, insurance, transportation, and housing). Bottom line: Don’t break your categories down too small. The money spent has to go into a category. You can always add more later.
- Automate, website, apps – later: I can’t emphasize this enough, but do this process manually, first. Then, once you’ve come to a good understanding of what you are spending, and where, you can look into seeing what applications might help speed the process. But, don’t confuse speedier with better. By using a website, software, etc., you may make the process “quicker” but at the expense of better understanding of your actual spending. Bottom line: Get your hands a little dirty and get the benefits of seeing your spending close up, without “the glossing over effect” of some application getting in between.
See? 4 easy steps. Setting up a budget really begins with tracking household expenses by grouping spending into a few meaningful categories to get an overall sense of where your money has gone. Redirect your hard earned resources into your savings account by tracking your spending. It’s really not that hard. So get out your statements and find out where all your money is going!
Here’s a short video…How to budget with Sara Tetreault
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How do you track household expenses?
Go Gingham related links:
Budgeting and how to track expenses – Part 1
Budgeting and how to track expenses – Part 2
Budgeting and how to track expenses – Part 3
How to reduce FAITH by category…
F – Food
A – Apparel – clothing for yourself and your home
I – Insurance
T – Transportation
H – Housing