Money management is paramount in order to live a debt-free life. Studies revealed that last year, 14% of the UK population were in the “need advice category” and 22% were at-risk of falling into that category. They were struggling to keep up with their bills and commitments, or they were running short of money to meet their essential expenses, courtesy of high-cost debts.
Tracking your money is essential to being on top of your expenses. Knowing cash coming in and going out will help you apply different methods to go on an economy drive.
Ways to track your money
You can track your expenses either using a budgeting app or a manual spreadsheet.
Create a functional tracking system
Keeping track of your finances is extremely important. No matter which way you log your transactions, you should be able to review them easily. Be sure to include the date, items bought, the amount you spent and the balance you are left with. Log transactions as immediately as you spend money, so you do not get bothered by mismatch figures.
- Create expense categories, as this helps you know where and how much money you spent. These categories include utilities, groceries, healthcare, travel and entertainment.
- Log all expenses daily or as soon as you incur them if you make payments in cash. If you make payments via a digital wallet or a debit card, you can note down transactions weekly or bi-weekly as they are saved in your payment app transaction history or bank statement.
If you use a budgeting app, you do not have to record transactions manually as it is linked to your bank account and automatically fetches all transactions. However, if you pay in cash, a manual entry needs to be posted.
Establish categories
Categorisation of expenses will let you know where and how much you spend money. Once you categorise your expenses into housing, traveling, and utilities, you should subcategorise them into essential, discretionary, savings, and emergencies.
- Essential expenses include housing expenses such as rent, building maintenance, utility expenses, debt payments, insurance and groceries.
- Discretionary expenses include dine-out, night-out, recreational activities, outdoor leisure pursuits, and shopping.
- Savings means setting aside a portion of your income to build retirement funds and create a nest egg to cover unexpected expenses.
When you know how much portion of your income is going towards essentials and non-essentials, you can easily come up with a strategy to cut back on your expenses. Slashing your expenses will help you grow your emergency cushion and less rely on loans without a guarantor with bad credit to cover unforeseen expenses.
Be consistent
It is vital to build a routine. Whether you use a budgeting app or a manual spreadsheet, make sure that you record all expenses and track them at the end of the week. Use a 50/30/20 budgeting rule to make it successful. For instance, not more than 50% of your income should be spent on essentials. Keep tallying your spending on essentials with your budget so your savings do not get compromised.
If you come across some emergencies, and your emergency cushion falls short of cash, try to pay for it from your essential or discretionary budget. It is a much better alternative than taking out a loan.
Money management tips
Though tracking of your expenses can help you reduce the financial burden and debt problems, it is not the only part of the overall picture. In order to be on top of your expenses, you should follow the following tips:
Create a budget
There are various types of budgets, such as a bare-bone budget, 50/30/20 or 60/20/20. Choose a budgeting method which suits your financial goals. It is likely that you need to change your budgeting method periodically.
With the help of a budget, you will stick to your spending goals. This ensures that you do not spend more than you earn.
Increase your income
If you are unable to cover all your expenses from your existing income, you should try to boost your income. If getting a job with high pay is difficult, try a side gig. Additional income will help you settle your debts and build an emergency cushion faster.
Deposit the remaining money into your savings account
It is not always possible that you are left with no money at all at the end of the month. Sometimes, your energy bills are not as high as you expected, and you do not spend too much money on night-outs and dine-outs.
The remaining money should go straight to your savings account at the end of the month or to debt settlement if you have any.
Cut back on your expenses
If you are trying to get on top of your expenses, you will have to trim down your expenses. First, you need to start with non-essential expenses.
Reduce food bills
You should try to buy in bulk only when it is a good bargain. Try generic products rather than branded ones. Use coupons and discount schemes, and compare prices with other supermarkets.
Reduce electricity bills
The heating system does not need to stay on all day and night long. Try putting on additional layers. Instead of using a tumble dryer, hang clothes on a clothesline in the summer season.
Avoid takeaways
Eating out once in a while is fine, but too much of it will lead to increased expenses. Homemade meals are way more budget-friendly than dine-out.
Cut back on unwanted subscriptions
You should avoid unused subscriptions. Review your bank statement and see if you have been paying for something you do not use now.
The bottom line
Tracking of your expenses is extremely essential in order to keep a tight rein on spending. You should always try to create a suitable tracking system. Whether you use a budgeting app or a manual spreadsheet, be consistent with tracking. Log all transactions to get a comprehensive view of your finances.
