Chapter 4. Track money going out

 

In the prior chapter, you learned to track all money coming in.  In this chapter, you will learn how to track your expenditures or money going out. This "tracking" process focuses on your spending and saving habits.

 

Think about your spending habits and how you make spending decisions as you ask yourself these questions:

 

 

Another important concept in financial literacy is “Needs versus Wants”

As you analyze your expenditures, it is critical to visualize the pattern of your spending habits and to recognize what drives your spending decisions. Culturally, we may value material possessions; these items are a testament to someone’s wealth regardless of the sources of funds. As consumer debts grew, it became more difficult for citizens to obtain loans, and by extension, acquire material possessions. Only in the last few years have people begun to question the practicality of carrying debts and paying skyrocketing interest charges just to acquire material possessions. People began to differentiate between what they “need” and what they “want” as part of their assessment of their financial health.

A list of your spending includes, but is not limited to, the following items:

How to

A good tip for making a tracking sheet for your expenditures is to list all of your monthly fixed and variable expenditures in no particular order. Then, use a green highlighter to mark your absolute needs and use a red highlighter to mark your wants. This will help you visualize your spending habits and make decisions accordingly.

There are several methods to completing a tracking sheet for your expenditures. You could keep all receipts, regardless of how you pay for them, (cash, credit or debit card) or you can record every transaction on a daily basis using a tracking application on your computer or your cell phone. The idea is to account for all of your spending or purchases, and sum them by category and amount at the end of each week, subsequently for each month and then for the entire year. This would be your actual cash flow spending from which to draw your average monthly budget.

It is recommended to track your expenditures for one year in order to formulate the complete picture of how much money you need to live on based on your standard of living. A year's worth of expenditures helps you keep track of periodic payments such as insurance and various taxes.

Most commonly, budgets are done monthly, because most bills are calculated on a monthly basis, such as rent, utilities, electronics, etc. Regardless of when you get paid, you need to convert your income and your expenses into a monthly scale if you chose to create a monthly budget, or a yearly scale if you chose to create a yearly budget. 

Remember, you always budget based on your NET INCOME or TAKE HOME INCOME.

 

Practice

Now that you know what tracking can help you do, use template below to track your expenditure daily, weekly, monthly and yearly.
You can get a tracking sheet template Download tracking sheet template

here, and practice to create your won tracking sheet. 

 

Did you find yourself spending way too much on eating out? Entertainment? Cable or cell phone plans that you could reduce? Think about paying it forward and teach someone how to do "tracking".

 

Congratulations! You can move on to Step 5: Review cash flow and set up a budget

If you want to see a whole module of Budgeting, click here.