The first three months or so, (maybe even the first whole year!) of creating and using a budget are going to be a learning experience. If you have no idea how much money you spend in any given category when you first start out, it will take time to learn your habits, course correct, and organize your finances. The process of creating a budget and tracking your expenses each month is going to help you tremendously.
Funny how the actual practice of making and using your budget will help you become better at budgeting!
How To Organize Your Expenses
So what exactly do you need to be sure you are doing when tracking your expenses and learning about your spending habits? You need to get organized. You need to be sure that EVERY PURCHASE is assigned to a category and that you are doing this either in a well kept spreadsheet or a budgeting software. If you want to go the extra mile (this is one of my financial goals for 2017) then you could even make sure that you are making notes about what your purchase actually was or what it was for.
For example, if you go to Target and purchase curtains, clothes for your kids, a candle, two DVDs, and a pair of shoes, what would you categorize that expense as? It is best if, in addition to assigning it a category, you were to make a note of all the items you purchased. Even better would be to use a budgeting software to split the expense into multiple categories so that you can be even more organized! We currently use mint.com and I love the feature of splitting expenses!
We wanted to go back this year and see what we had actually purchased in the “kids” category. Sadly, while we had a total number spent and the names of the stores we had purchased from, we had no idea what items we had actually spent money on. This did not help us necessarily when we were trying to figure out if we were spending on frivolous or unnecessary items – even if we were sticking to our budget.
Why Should You Organize Your Expenses
WHY do you want to track all of your expenses so closely? Planning for the year or even for the month a couple months down the road is going to be so much easier when you have historical data to look back on. If you are not a numbers person and cringe at the word “data”, then I highly recommend using a budgeting software that will do all this for you. You will be able to easily choose your category and the time frame that you want your data from and it will instantly give it to you.
All you have to do after that is divide by 12 if you are looking at the past year, or just divide by the number of months you are trying to gather data from. This will give you your average monthly spending in that category. This is a great technique for those fixed expenses or items you spend money on every single month.
Another way that this data can help you is in setting your goals for reducing your spending in certain categories. If you know how much money you spent in a category last year, or even in the last couple of months, you will easily be able to decide if you think you could reduce spending in that area.
In reviewing our spending for 2016, we learned that we spent about $2350 on gifts, NOT including Christmas! To me, that is ridiculous. AND it was more money than we spent in 2015 on gifts. This allowed us to really think about our gift expenditures and commit to reducing our spending in this category by setting strict budgets for individual gifts and holidays.
Other Ways to Organize Your Finances
While I would definitely start with organizing your expenses, there are many other areas of your finances that will be helpful to organize. I don’t know about you, but I have so many accounts online for banking, investments, student loan accounts, etc. For a long time, I knew that I had these accounts but I had not bothered to look at them. Part of creating a budget is listing out all your expenses. If you are contributing to retirement or investments (or have in the past) or paying down student loans or other debt, I hope you at least put a second of thought into how to access those accounts. If not, then now is the time!
Set aside some time to list out all past and present accounts that you might have money sitting in or debts to be paid. Make sure you list out the company or person you owe, the account number, the balance on the amount, and the login information (in a secure location of course!). Explore the accounts and make sure everything seems up to date and accurate. If you are no longer able to access an account that you know exists, now is the time to get in contact with the company and figure that out.
Getting all your money and debts in order will give you a true and accurate picture of your financial situation, and as much as it might make you feel overwhelmed at first, it will make you feel better in the end knowing that you have control of your finances!
Finally, another reason to get all your accounts and expenses in order is for tax season! I personally keep a small folder in my office and anytime I get a piece of paper that is related to taxes or will help me do my taxes in the spring, I just shove it in there. Once tax time comes around, I pull out that folder and see what I am missing. Makes it easier to know what I might be waiting for in the mail or electronically.
Getting your finances organized should definitely be on your list of must-do items in the near future. It is definitely one of the keys to success when it comes to handling your finances!
How organized do you feel your finances are? Do you use any special method?
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