Sunday, June 16, 2019

Plan to Keep Track of Your Spending

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In just a few years, an average family spends over $100,000. Without organized expense records, it’s often difficult to know just how this large sum was used. Expense records can help you decide whether more debt can be afforded realistically or where spending adjustments are needed to reduce debt, increase savings or cut spending “leaks.” With organized financial information, credit applications can be completed more efficiently and tax preparation can be less difficult and more accurate.

Record-Keeping Tools

While it’s possible that only accountants enjoy keeping records, personal or family record keeping need not be a burden. The task can be much easier with these basic tools: 1) a “bill holder,”1 2) an “in box,”2 3) a “receipt file,”1 4) an account book, and 5) an inexpensive calculator.

Purchase an account book at the county Extension office or at an office supply. Or, use a notebook in which you rule your own account columns. An inexpensive calculator simplifies math computations. Computer software (such as Quicken or Microsoft Money) also may be an option.

Categorizing Expenses

For a meaningful picture, individual expenses need to be grouped in categories. There is no single list of categories that will work for everyone. Consider the following when developing categories that will work in your situation:

  • Start with a “sample” list (as illustrated). Delete items that don’t apply and add others or combine categories to fit your needs.
  • Think about the information YOU need or want (for example, use a category for “meals eaten out” if you want to keep track of the cost of eating away from home).
  • Try to use categories that “match” your spending. (If you’ve not kept records, use a 6- to 8-week trial period of recording expenses and adjust the categories as needed.)3
  • Separating “fixed” expenses (such as rent, loan payments, etc.) from “variable” outlays can help you determine whether additional fixed obligations can be undertaken. (Remember that once committed, fixed expenses are hard to reduce should you change your mind or suddenly have a reduced income.)
Keeping Track of Spending Cut out and tape or paste these labels on small boxes (shoe box for the bill holder, coffee can for the “in-box,” etc.). Bill Holder Open Bills AS They Arrive Write Payment Date: On Outside of Envelope & on Payment Calendar File Bills By Date in “BILL HOLDER” NOTE: Allow Enough Time for Payment to Reach Creditor by Due Date. In-box To Hold TEMPORARILY: Receipts and Paid Bills Notes of Non-receipt “Cash Payments” (such as gasoline) REGULARLY, Record Items (2-4 times per month) Transfer Recorded Items to “RECEIPT FILE” as Each is Recorded Receipt File File Receipts By Category AFTER Recording Expenses At End of Tax Year, Transfer Receipts Required for Tax Records and Insurance Proof of Purchase to Long-Term File (for example, medical payments, statement of mortgage payments, furniture purchase receipts, etc.)

Find a Workable System

Some make notes on shirt cuffs and others scribble in the backs of checkbooks. People sometimes use unusual methods to keep track of spending. Finding a workable system may be puzzling, especially because there is no single best system that will work for everybody.

The approach suggested earlier (bill holder, keeping can, etc.) is one possibility. It may be easier if one person assumes the primary record keeping responsibility. This means that other family members need to regularly report their spending. Perhaps the recording task could be rotated every six to twelve months to share responsibility and to keep familiar with the financial information.

“SAMPLE” EXPENSE CATEGORIES
FIXEDFLEXIBLEFIXEDFLEXIBLE
EMERGENCY FUND______________________FOOD______________________
SAVINGS/INVESTMENT______________________      AT HOME______________________
TAXES______________________      MEALS OUT______________________
      INCOME______________________CLOTHING______________________
      OTHER ________________________________      NEW PURCHASES______________________
      OTHER ________________________________      DRY CLEANING______________________
HOUSING______________________      OTHER ________________________________
      RENT/MORTGAGE______________________HEALTH______________________
      INSURANCE______________________      MEDICAL______________________
      REPAIRS/MAINT.______________________      DENTAL______________________
      EQUIP./FURN.______________________      DRUGS______________________
      OPERATION/SUPP.______________________      SUPPLIES______________________
      TAXES______________________      OTHER ________________________________
      OTHER ________________________________CHURCH/CHARITY______________________
UTILITIES______________________GIFTS______________________
      ELECTRICITY______________________      BIRTHDAYS______________________
      GAS______________________      GRAD./WEDDING______________________
      OTHER FUEL______________________      HOLIDAY______________________
      WATER______________________      OTHER ________________________________
      TELEPHONE______________________PERSONAL______________________
      TRASH COLLECT.______________________      GROOMING______________________
      TV CABLE______________________      OTHER ________________________________
      OTHER ________________________________      ALLOWANCES______________________
CONSUMER CREDIT______________________RECREATION______________________
PAYMENTS______________________      MOVIES/SPORTS______________________
      CAR LOAN______________________      HOBBIES______________________
      OTHER ________________________________      VACATIONS______________________
      OTHER ________________________________      OTHER ________________________________
TRANSPORTATION______________________EDUCATION/INFORMATION______________________
      LICENSE PLATES______________________      SUBSCRIPTIONS______________________
      DRIVER’S LICENSE______________________      NEWSPAPER(S)______________________
      GASOLINE______________________      TUITION/REGISTRA.______________________
      REPAIRS/UPKEEP______________________      SCHOOL SUPPLIES______________________
      PARKING______________________      OTHER ________________________________
      FARES______________________      OTHER ________________________________
      OTHER ________________________________OTHER______________________
INSURANCE_______________________________________________________________
      LIFE_______________________________________________________________
      CAR_______________________________________________________________
      MEDICAL_______________________________________________________________
      OTHER _________________________________________________________________________

Some Record-Keeping Tips

It’s possible to simplify the accounting task. For example, use a “reasonable” personal allowance to cover the many small “incidentals” that add up over time. This means fewer accounting entries and also gives a sense of some personal spending freedom, which can be especially important for tight budget situations. Other tips include:

  • Simplify math by rounding home account book entries to nearest half or whole dollar (not appropriate for your check register, however).
  • Use a wallet-size file card or notebook to record the nonreceipted cash purchases (gasoline, vending machines, etc.).
  • Star entries that are tax-deductible to save work when you complete tax returns (or, use additional categories for tax-deductible items).
  • Avoid “hiding” expenses and don’t put too many items in the “miscellaneous category.”
  • Remember that habits, including spending, are not changed easily. Avoid controlling too tightly. Also, recognize that individual tolerance for detail can vary considerably from one person to another. Try to evolve a system that is compatible with personal tolerances.
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