Talking about money isn’t always easy. We rarely share income and expense details with each other, we don’t really talk about debt or other difficulties with money, and we’re also not encouraged to share salary details with colleagues, so it’s hard to even know if we’re all being paid the same.
Talking about money is somehow frowned on, despite it being something most of us have a vested interest in. After all, without money the bills won’t get paid.
It’s almost as if we’re supposed to have an inborn instinct for money management, whereas the reality is that it’s a learned skill.
If you’ve ever wondered where your money goes, how you can make it go further or find ways to cut down on spending, these tips might help.
Dive into the Details
Understanding what’s happening with your finances means tracking how it moves through your bank with some simple accounting or bookkeeping. You might already know that the last week of the month is tight or you’re not earning quite enough to maintain the lifestyle you’d like, but that’s too broad. You need to see where every penny is going.
You can do it like this:
Keep a little notebook with four columns on each page. Give them the headings: Date, Item, Cost, Balance. In the balance column, write down the amount currently sitting in your bank account.
Going forward, jot down every item you spend money on and every penny you earn, in their respective columns.
- The date is when the transaction took place.
- The item is what you bought or the category of income (such as wage or salary, or sales if you have a business).
- The cost is the amount.
- The balance is the amount either added to or subtracted from your available funds.
Include as much detail in the ‘item’ column as you can, as this will help with some analysis later. It won’t take long to build up a useful picture of what you’re doing with money. After just a month you’ll have some revealing figures to work with.
Understanding and Using Your Tracked Spending
This is where the magic happens and is the fundamental basis for all bookkeeping and accounting.
Because you kept some close details in your ‘item’ column, you can break down your spending into categories and figure out which area is costing you most. It might be running your car, popping into the supermarket every day, takeaway meals, household utility bills or internet, mobile phone costs… there are lots of daily expenses we don’t always watch as closely as we could.
Once you start seeing the activities that are swallowing up your income, you can make more informed decisions about dealing with it, or not, if the cost is giving you good value. That’s your shout, and it’s good to make that decision from a position of knowledge rather than guesswork.
If a category of spending surprises you (it can be astonishing how repeated small spends add up), you’re now able to change it. Shop around for a better utility deal, switch your mobile contract, cook at home more often, for instance. The thing is, you’re in control.
Many banks have digital trackers that show you where you are spending your money. You can see what categories you are pouring your funds into and where you can improve going forward. They are often linked to a virtual debit card and can be a great way to keep an eye on your finances.
When Simple Home Accounting isn’t Enough
While this super simplified method is fine for managing basic household expenses, it is just the tip of the iceberg.
If your finances are more complex such as needing advice on investment funds, or if you’re in business and need help with freelance or sole trader accounts, professional advice is the way to go. It’s especially useful if you’re starting out in business and unsure about the records you need to keep or how to properly register and launch your business.
If you don’t have any formal business interests or plans, accountants can also help you with such things as investments, asset management, private equity, or hedge funds.
Whether you’d benefit from expert accounting advice is something only you can decide, but if you’re considering starting a business or have more complex personal financial affairs, it’s worth considering. For everything else, the simple method outlined above will get you used to tracking money, and help you build a better relationship with it going forward.
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