After the indulgence of the holiday period, many of us turn towards creating new habits and resolutions in the new year. One of the most popular goals for the new year is creating and maintaining good financial practices, whether this be saving, paying off debt or reducing unnecessary expenditure. Arguably the most important step in regaining control of finances is to track your expenses, ensuring you are aware of how much of your money is going where. Whilst this can seem like a daunting undertaking initially, you’re halfway there with a good spreadsheet, which should do most of the work for you. Tracking expenses should help you identify where you can reduce your spending and leave with you a bit more extra cash for the bubbly next Christmas. We’ve put together a list of tips to get you started with tracking expenses in 2022.
Monitor your bank account
It’s very hard to know where unnecessary money is being spent if you’re not checking your bank account regularly. Familiarizing yourself with your own spending habits is the first step to being in control of your expenses. Often, there will be charges that people forget about until they check their outgoings – streaming service subscriptions being the main culprits. You can check charges using online banking, or through email or paper bank statements. Once you have an idea of an average month of expenditure (this might require several months of statements) you can start to put together a spreadsheet.
Use a Spreadsheet
Not only can the use of a spreadsheet do a lot of the heavy lifting for you when it comes to equations, but it is also an effective tool to display all your outgoings and income in one place. There are plenty of templates available online for excel that you can fill in with your own data or there are apps available, making it easier to track your expenses on the move or when travelling. Most spreadsheets will break down spending into categories, to make completing these sections easier, most online banking apps also categorise spending as a money managing tools – this can be far more efficient than combing through and sorting transactions. Examples of spending categories are food, bills, leisure, and travel, with food being the category where most people find they overspend.
Use your spreadsheet to create realistic budgets
Most people track expenses with the goal of saving money or reducing their expenditure. In order to get the most out of your tracking, set a budget for each category and try to stay within that for the month. It is important to make these budgets realistic; if a budget is too restrictive, it can be demotivating and derail any progress. If you have no idea how much you should be spending, you can find rough guidelines online which can help inform your budget.
Track as you spend
After your spreadsheet is up and running, you can begin to track as you spend. This reduces the input at the end of the month and more importantly, keeps you on track to meet targets and budgets throughout. This should also make you more mindful of how you spend money and what you spend it on, preventing transactions such as cash payments being lost. Summing up your expenses at the end of each day might seem unnecessary, but it can provide valuable insight into your spending habits.
Like any new habit, tracking expenses can be hard to stick to initially, but developing a consistent routine throughout January is one of the best ways to ensure you stick to your resolution for the rest of the year. If you find it overwhelming at first, tracking one or two spending categories to start off might be a good way to ease yourself into it. Whilst dedicating part of your day, every day, to anything is a challenge, the reward and satisfaction will definitely make it worthwhile in the long run.
This communication is based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity
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