Two of the best things you can do to manage your expenses are to balance your accounts and create a budget. Balancing your accounts means ensuring what you show on your own financial records matches what different creditors show on their financial statements. If your checking account monthly statement shows that you have $2,500 currently in your account, your debit card receipts of withdrawals, purchases, and deposits should also add and subtract to equal $2,500. If, for whatever reason, the numbers don’t match, either there is a fraudulent transaction, or there is a mistake on your part or the financial institution’s part. This same balancing theory applies to all of your accounts: savings, credit card, 401(k), etc. It’s crucial to know exactly what is in your account to ensure you can cover your expenses.
Your expenses should fall within your means, but you won’t know what your limits are without a budget. We’ll walk through how to create and manage a budget and how to balance your accounts. Both of these are crucial skills to your success.
How will these two skills help me?
A budget will help you understand how much you can and should be spending on different categories every month -- utility bills, clothing, food, memberships, rent, etc. It involves comparing your money coming in every month with what you need to pay off every month. It includes understanding your monthly wants and needs and weighing them against each other. It should not be viewed as a limiter, but more so as a guide. Budgets may ebb and flow with changing income and life circumstances.
Balancing your accounts, on the other hand, helps you check for fraudulent transactions. There is often a finite amount of time for you to report them and be compensated for the money lost. If you do not balance your accounts often, that time window will shut. If you do find any mistakes or fraudulent transactions, get in touch with your creditor directly.
How do I actually go about managing my expenses?
First, you’ll need to sit down and create a budget. But before you can do that, you’ll need to gather a few months’ worth of purchase, withdrawal, and deposit receipts, along with account statements from your credit card providers. For this exercise, it would be most helpful to buy things on your credit or debit cards so you have a record of how your money was used throughout the month. Otherwise, just be diligent at recording your cash transactions.
Once you have gathered all of the paperwork or online records, split the transactions into categories that make sense for your wants and needs: food, clothing, rent, mortgage, power bill, water bill, gym membership, alcohol, diapers, etc. Depending on your life stage, these categories will vary greatly. Using Excel or a similar program, or pen and paper, write down all of your transactions in the category they belong in. This will give you an idea of what you currently spend on each. Add up all of the categories to get a total expense number. If you want some automated help on this step, check out apps like Mint, Pocketguard, Honeydue, and Personal Capital.
Next, write down how much money you make every month. Is your income more than your expense total? Regardless of your answer, start going through the transactions and seeing which are necessary. A power bill is necessary; a new pair of shoes isn’t. If your expenses are greater than your income, you need to start cutting down on the unnecessary purchases. Start coming up with a maximum number you can afford to spend in each category. Once you’ve worked out these totals, you have your budget! Keep it handy so you can refer to it before purchases.
For balancing your account, gather each month’s purchase, withdrawal, and deposit receipts, along with account statements from your financial institutions. Compare your receipts with the transactions listed on the financial statements. If the transactions and totals do not match, reach out to your account provider to sort out the mistake or fraudulent charge.
All in all, managing your expenses doesn’t have to be overwhelming. There are many programs to automate the process, and lots of research online about tried-and-true manual methods. Establishing a budget lays the foundation for a sound financial future, so it’s necessary to develop a system for doing so. Balancing your accounts, on the other hand, keeps your finances in check and ensures that your hard-earning money doesn’t get used by a fraudster or snapped up by a simple mistake.