If someone asked you what you earn, you could probably tell them to the nearest dollar what you get in your pay packet each week, fortnight or month. We do like to keep a close track of how much money is coming in. But what about knowing where your money goes?
When it comes to spending, we don’t tend to keep such a sharp eye on how much is leaving our accounts and, more importantly, what we’re spending it on. Which is crazy really, because how can you stay on top of your finances if you only have half the picture?
Knowing where your money goes
In a typical scenario, your wage or salary gets paid into your account and then everything starts to make its way out… your rent or mortgage payment, car loan, insurance, phone bill, utilities, school fees, groceries… you probably have a few of them set up on direct debit so you don’t even need to think about paying them. At the end of the month, you remember your credit card bill and hope the money you have left is enough to at least meet the minimum payment. You’re left wondering where all your hard-earned cash went, but then don’t bother to do anything differently the following month.
Does that sound at all familiar? Even if you can just relate to this scenario in part, perhaps it’s time to take action to break that cycle of spending until it’s all gone. And how are you going to do that? A budget. Many people run a mile when they hear that word, but don’t worry, we have plenty of articles which will guide you through the process in more detail.
Tracking your spending
Essentially, it’s very hard to take control of your money – especially if you’re already feeling the squeeze – when you don’t really know how much you’re spending and on what.
If you try and base your budget on guesswork, you’re likely to be rather optimistic in your estimations and you’ll still be left confused about where all that money is going.
To build a good foundation for your budget, you need to paint a realistic picture of your current spending habits, and that means you need to start tracking all of your outgoings so you know where your money goes. Regular fixed payments, like insurance and loan repayments, are easy enough to factor in. The hard work comes with things like groceries and entertainment which might just be a few dollars each day but add up over the month.
It doesn’t need to be a big deal, though.
Creating a ‘spending diary’
Depending on how you like to work, there are different ways to approach this. There are tons of apps available to download that will make it easy for you to enter your purchases on your smartphone throughout the day. They’ll help you categorise each dollar and pull all the information together. If you’re more of a receipts and spreadsheet kind of person, go for it. Or if you’d rather have an old-fashioned notebook, that’s ok too. Use your favourite pens to colour-code each line if you like; do whatever works for you as long as every dollar that leaves your bank is accounted for.
We’re talking groceries, fuel, clothes, lunch, dinner, morning coffees, after-work drinks, that cheeky burger, the new shoes you didn’t really need, the handful of change you put in a charity box… everything gets recorded.
One upside of being this thorough is you might find yourself starting to spend less on little non-essentials just because you don’t want to have to write them down – saving money before you’ve even made a budget, excellent!
Give it a couple of weeks of tracking your spending like this and you’ll start to build up a picture of how your expenses really stack up. Perhaps you’d never really thought about how the cost of a coffee a day accumulates over a month, or how much you spend on your car compared to your house.
Well, now you know more about where your money goes, and you can congratulate yourself on having successfully completed the first step towards getting your finances back on track for good. Now it’s time to focus on budgeting and working out which of your spending habits need to change.
- Knowing how much we spend is just as important as knowing how much we earn
- The best way to take control of your finances is with a budget
- To form a strong foundation for your budget you need to keep a ‘spending diary’
- Whether on an app, spreadsheet or paper, track EVERYTHING you spend for a couple of weeks to build up a picture of where all your money goes