Friday, May 7, 2010

How To Track Your Expenses

Money flows like water. It can gush like a raging river or drip like an annoying leaky faucet at midnight. If we use this precious resource mindlessly, we face drought. However, if we first observe the ebbs and flows, effective management becomes a simple matter of design. In other words, you NEED to know where your money goes in order to manage the flow. Once you know where your money flows, you can design a realistic budget plan and start making conscious spending choices for your hard-earned dollars.

Create an expense tracking system and establish a routine. January is the perfect month to start. I’ve tracked my expenses for over 15 years. It really doesn’t require a lot of time (~5 to 15 minutes a week). I pay my bookkeeper to do this task for me now and at about $1.25 to $3.75 a week, it’s worth it. If you have kids, this can be an educational task to delegate to them.

Expense tracking options include:

save all receipts and file them into large envelopes labeled by expense category
write each expenditure under a category column in a ledger book
write each expenditure in a pocket-sized spiral-bound notebook (carry it with you when you leave home)
use a software spreadsheet like Microsoft Excel or Open Office Calc
use a personal finance software program such as Microsoft Money Plus Premium or Quicken.
* sign up for an online application such as Mint.

While all of the above methods work, I use personal finance software (specifically Microsoft Money Plus Premium because I like their Lifetime Planner tool). Both Microsoft Money and Quicken include a wide range of helpful tools to make personal money management tasks easy. Specific to this particular task of tracking expenses, Microsoft Money Plus Premium and Quicken personal finance software:

connect to thousands of banks and update your expense transactions automatically
automatically categorize your transactions and compare them to your budget
show you exactly where your money is flowing using charts, graphs and reports
let you see the big picture or drill down to the details

Four Tips:

Make the most of on-line banking. To make tracking your expenses easy and accurate, pay for everything with a check, debit, or credit card. Check your account often and set up as many automated transactions as possible. (Important Note: If you pay routine expenses by credit card, pay off your account balance in full each month!)
If you must use cash, keep your receipts and enter each transaction into your expense tracking system.
Make it a habit to track your expense transactions regularly. Designate a time weekly for this task and at the end of each month, total the amounts spent by category. In my case, it only takes about 10-20 minutes per week to confirm my automatically downloaded expense transactions and to reconcile my downloaded bank account statements.

Here is a comprehensive list of expense category suggestions. Modify my list to fit your own needs and lifestyle:

Auto -repairs, gas, insurance, registration, tolls…
Auto Payments
Bank Account Fees
Beauty -hair cuts, manicures, makeup…
Child Care
Debt/Loan Payments -create a different account/category for each loan
Dining Out
Finance Fees
Home Improvements/Maintenance/Repairs
Household Furnishings
Insurance (Disability)
Insurance (Health)
Insurance (Homeowner/Renter)
Insurance (Life)
Insurance (Medical)
Insurance (Personal Liability)
Liquor/Tobacco -if applicable
Mass Transportation -bus, train, light rail…
Medical -everything except health insurance premiums
Misc -avoid this category as much as possible!
Mortgage Payments/Rent
Savings (Education)
Savings (Emergency Fund)
Savings (Retirement)
Savings (Specify Purpose)
Storage Unit
Subscriptions, Books, Software
Taxes (Federal, State, Local)
Tax Preparation Fees
Toys (purchase, repair, insure) -includes boats, electronics, bikes, jewelry…
Utilities (Electric)
Utilities (Gas)
Utilities (Internet)
Utilities (Misc)
Utilities (Telephone)
Utilities (Trash)
Utilities (TV Programing)
Utilities (Water)


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Was established since 20th Rejab 1430.
Just to educate myself.
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