With the effects of Covid-19 passing its first anniversary, tracking your spending has never been more important. Whether you have suffered financially as a result of the pandemic, or you are simply more conscious of how you spend your hard-earned money, there are ways to ensure your budget is accurate, realistic and sustainable. Having a good budget starts with tracking and categorising your spending so that you know exactly what you spend your money on and where you can be making savings.
Tracking your spending is really the first step to creating financial resilience and financial wellness. You may already track your spending without knowing: it can be as simple as checking your mobile banking app daily to see your balance and the recent payments you have made. It doesn’t mean being paranoid about your money or overthinking every purchase. It’s about keeping tabs on your cash so you can be prepared for financial emergencies and start saving for things you want, rather than only saving for the things you need.
The easiest way to start tracking your spending is to look at your most recent monthly bank statement and categorise the payments. You will have 3 main groups: income, priority bills and disposable income. You can highlight the payments if you like a visual representation, but otherwise you just need to add up the payments in each group and this will give you a very rough outline of where most of your money goes. It will also determine if you spend outside your means (this means spending more money than you earn).
This general categorisation often highlights the invisible spending which is the money you spend without realising and is a great place to start if you are looking to save money. In order to track your spending effectively, you’ll need to break down your categories further to understand which of your disposable income payments were necessary, e.g. kids’ clothes for school, and which of your disposable income payments were not, e.g. Friday night takeaway.
You can organise your spending manually by writing out a list or getting a budget diary which coordinates your monthly payments by dates and importance. However, the easiest and quickest way to categorise your spending is by using a mobile app connected to your bank account or by switching to a bank which provides an automatic categorising service. Using an automated service saves you time and usually represents the data in a clear, visual way. Plus, as it’s a part of your normal banking services, it should be free.
Banking apps typically put your payments and purchases into categories such as:
There are so many categories, including pets, bills and services, gifts, so that you can benefit from a good awareness of your financial circumstances. Usually, you can also edit which category a payment falls into as your bank is unlikely to know if a purchase is a gift or not, for example. Having a variety of categories means you can effectively manage your money: you will see exactly how much you spend eating out compared to your weekly food shop, instead of both being organised under ‘food’ as one is luxury, and one is a necessity.
Apart from the benefits of knowing where you spend your money, tracking your spending means increasing your financial awareness and helps you step towards creating a sustainable budget.
Financial awareness is important because it forms part of your financial wellness. Just like it’s essential to maintain a good physical health, financial health is more than just having a positive balance at the end of the month. Good financial health can help improve your mental health as money-related stress and worry is alleviated, and it also means you’ll become less credit-dependant and more financially resilient. This results in you feeling more confident in your ability to manage your money and better equipped to tackle cashflow shortfalls throughout the year. It all starts with tracking your spending so that you can create a sustainable budget.
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