I would like to introduce the concept of "Month End" for your households. Businesses review their finances at the end of every month to ensure that they are financially healthy. Part of the month end review include checking to see if you've achieved the income and expense goals/budget for the month and if not, what you need to do to fix it.
For households to stay financially healthy, the same concept needs to be applied. We need to review our income and expenses on a regular basis. When you begin this process, you may want to review it weekly, however as your finances stabilize, once a month seems to be a good time interval for a review.
To review expenses, some people keep their receipts from EVERY transaction so that they could figure out what was spent for the month. I heard of a good idea from a friend - never tried this because I am not a receipt keeper - she stuck labelled envelopes on the inside of a kitchen cupboard door and she would put the receipts in the appropriate category when she got home. So, receipts would go from purse into the appropriate categories.
Some people keep a log book and write down what they spent. I used to have a sheet of paper on my fridge and I would write down what I had just spent when I got home. When I finally came up with an electronic method, I right away abandoned all tedious manual methods! I try to use the Debit Machine for all my expenses. I rarely use cash because I find that cash is not traceable, unless you like keeping receipts. (I understand that some of you may belong to the Conspiracy Theorists group and prefer to not have your expenses easily tracked - so, receipts will have to be your friend :-)).
This next 3 paragraphs will seem like "gobbly goop", if you're not a technical person. Skip the next 3 paragraphs if that's the case...
At the end of each month, I download my transactions for that month from my PC account. PC allows you to download directly into a money managing software like Quicken. I prefer using Microsoft Excel because I already have the software and I am proficient with it. I export the transactions to a .pcf file and then import the file as if I am importing a text file, into Excel. In the spreadsheet, I have a column for each budgeted category. A column for Income, a column for groceries, a column for hydro, a column for gasoline, and so on. I have a category code set up for each column/budgeted item. For example, I use GR for groceries, GA for gasoline, IN for income. You can use whatever you choose. I have formulas set up in my Excel sheet to automatically put the transaction amounts into the proper columns when I enter a category code beside the amount. It all seems rather technical - so if you need help with a tutorial on setting this up, please email arjacob1-finance@yahoo.ca.
So, after I import the transactions, I proceed to type in the category code for each transaction beside the amount. This automatically puts the amount in the correct column and I had set up the spreadsheet to automatically total each category for me.
The totals for each category get transferred automatically to the Budget Comparison sheet which shows me if I am meeting the budgeted amounts. Once the spreadsheet is set up, all you need to do is download the transactions, type in the relevant category code beside each amount and review the data to see if you are living within your means! It takes a bit of time to set up but once it's done, "month end" can be an easy task.
To use the manual method, simply add up all your receipts for each category. You will also need to include the paid bills, such as utilities and property taxes. Then compare them to your budget.
If you meet your budget, sweet! If not, one of the following needs to be done:
1) Review the budgeted amounts and modify the budget to reflect reality
2) Modify spending habit to meet the budget. The numbers don't lie - if you are running a deficit, you are adding to your debt.
It is important to continue measuring your spending reality to your budget. A monthly review, a.k.a. "month end" will help you stick to the budget. If you have a deficit in one month, you know that you will need to watch next month's spending so that it would have a surplus to compensate for this month's deficit.
In the next post, I will share how the "spender" and the "saver" in the family finally stopped disagreeing about the finances.
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