Budget and expense tracking is a tedious and time-consuming activity, which is why a lot of people don't do it. Complicated expense trackers are a common mistake people make. I will share with you several ways to improve how you can track your expenses and finish them faster.
- Record any expense you make immediately. You will most likely forget about it if you postpone recording it.
- Use any tool available to do this task. A notebook or a piece of paper or your phone will suffice. What is important is that you will have a traceable record of all your expenses.
- Find time to check your recorded expenses at the end of the day. It is easier to recall what you spent a few hours ago compared to what you spent a few days ago.
- Establish few income and expense categories. Fewer categories make it easier to maintain and track your expenses.
- Use programs and apps to improve efficiency. Use what is accessible and comfortable for you. A spreadsheet or a smartphone app will make recording and tracking faster and easier.
Establishing a budget can be a bit tricky. The most common mistake people make is creating a complicated budget. There are a few methods you can use to simplify your budget.
The Jar System
T. Harv Eker discusses The Jar System in his book The Millionaire Mind. The Jar System simplifies budgeting into six categories. Necessities (NEC), Financial Freedom (FF), Long Term Savings (LTS), Education (EDU), Play, and Give.
Necessities (NEC) 55%. An account for basic needs such as Rent, Mortgage, Taxes, Utility Bills, Groceries, Insurance, and other necessary expenses.
Play 10%. The purpose of this jar is to nurture yourself. You can splurge on anything your heart desires. You can use this to buy expensive clothes, a massage or a weekend getaway.
Education (EDU) 10%. Account for self-improvement. Expand your knowledge through seminars, books, and online courses. Investing in yourself will improve your chances of being successful.
Financial Freedom Account (FFA) 10% This account is for wealth building and is for investing and building passive income streams.
Long Term Savings for Spending (LTSS) 10%. Account for buying big-ticket items. Use this to purchase a new big screen tv, a car, or for a vacation.
Give 5% Use this money to buy gifts on birthdays, special occasions, and holidays. You can also share your blessing by donating to your favorite charity.
50-30-20 Rule of Thumb
The book "All Your Worth: The Ultimate Lifetime Money Plan" by Elizabeth Warren and Amelia Warren Tyagi discussed the 50-30-20 rule. The strategy divides your net income into three categories. Needs (50%), Wants (30%), and Savings (20%).
These are necessary expenses that are essential such as rent and grocery. Some expenses might be a need to some and a want for others. A person working in sales needs to spend a lot on phone bills and transportation.
Any expense that is not necessary goes to this account. Expenses are unnecessary if you don't need it to function. Some costs, such as groceries or clothing, may fall in both classifications. A gallon of ice cream, which falls under groceries, is a want. A pair of shoes is essential if you need to replace an old pair of shoes.
Wealth building account. Pay off all your debts first before you start investing. You can begin investing once you are debt-free.
There are several investment instruments with different levels of risk. Real estate, Forex, Stocks, Bonds, and Money Market are a few of the investments to consider.
Simplifying your expense and budget tracker is the key. The lesser you time you spend budgeting, the more likely you are to stick to it.