1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Since you have decided to read this article, let me assume that you are looking into your finances seriously. Maybe you are overspending, maybe you are looking for ways to control needless expenses, or maybe you are trying to understand where and how you are spending all your money.
It's good to be concerned about your monthly expenses, but your concern calls for some action. The perfect action would be to create a budget plan, but before you do that, you must learn to understand your spending pattern. Hence you need to start tracking your monthly expenses. Here are a few tips from mymoneykarma to get you started.
Keep an Eye on Your Expenses
Gone are those days when we could figure out if we were broke by looking at the dwindling wad of cash in our wallets. Cash transactions have taken a back seat these days and we mostly use cards for all expenses. Unless you have an eidetic memory, you have no clue how much you are spending and what exactly is left in your account when you swipe your card to make a purchase.
We often lose track of our funds and develop the terrible habit of overspending.
You must keep an eye on your expenses and observe your spending habits. Take inventory of every account that you have, including all your credit cards. You must also have a sound knowledge of your monthly cash flow. Carefully examine all your account statements and locate the areas where you are spending unreasonably.
Sort Your Expenses
If you wish to understand your spending habits well, you must figure out a way to categorize your expenses. You could do it manually, but there are several personal finance management tools and apps available online that are extremely convenient. These apps can help you sort each expense into categories like groceries, automobile expenses, entertainment, household expenses, dining out, etc.
Your monthly expenses have fixed and floating components. If you can sort them into categories, you can easily identify the areas where you are overspending. While fixed expenses aren't likely to fluctuate, maybe your variable expenses will make you realize that you hardly use the Netflix subscription that you are regularly paying for, or you might figure out that you are eating at restaurants too often. Once you know where you need to control your spending, you can free up a lot of money.
Figure out the right way to track your expenses - you might prefer the old-school way of using a notebook, or the tech-savvy way of doing it in Excel, or you could just download one of the budgeting tools that are readily available on the internet for free. The personal finance management tools and apps like You Need a Budget or Monefy need you to input the data. You have to be very particular and log your purchases consistently.
Some of these budgeting tools let you allocate a certain amount for each category of expenses. However, these tools cannot force you to stop spending once you hit the limit. You need to be diligent in entering your expenses in the app every day and keep your tracking consistent.
Explore Tracking Options
Earning money is way too difficult; spending it is a child's play. In the erstwhile days of cash transactions, people were cautious about their expenses. Plastic money is in trend now and it has largely affected our spending habits. When we use a credit or a debit card for our primary mode of purchase, we end up spending a lot more unintentionally, without even realizing it.
At the same time, expenses are constantly on the rise and we should learn to keep track of our incomes and expenses. However, we hardly have the time and patience for it! Then how do we manage our finances? How do we track our expenses? Our smartphones and the world of apps can be our saviors.
There are several money management tools available that can track our expenses automatically. Walnut, ET Money and Money View are quite popular in India. You could try them out for free.
These readily available and free budgeting tools might not suit everyone's needs. You might not feel comfortable using the apps, or the apps might not be able to support your requirements, especially if you have a complex financial portfolio. A few of these apps have paid versions that can access your all your transaction details from each of your bank accounts; these apps allow you to track your expenses in a smarter, more effective, precise and organized way.
When you get into the habit of tracking your expenses regularly, you will uncover your greatest financial flaws. You will discover a lot of inessential expenses and realize that you can work on them to improve your finances. Do not hesitate to change your spending pattern.
While you can easily reduce the unimportant expenses, you could also benefit from re-structuring the 'big fixed expenses' in your life. Moving to a less expensive apartment, discarding a barely used facility, subtly changing your food habits can work wonders.
Sometimes, when you track and investigate your expenses, you might also realize that you are paying higher rates of interest for your home loan or auto loan than the prevailing market rate. You can seek help from mymoneykarma and get them reduced.
A little effort can help you save a lot. Understanding your spending pattern is crucial while making a perfect budget plan.
Track your expenses and develop good saving habits. Create a budget plan and follow it diligently to stay on top of your finances.