The one thing that has been largely responsible for keeping me financially accountable is my personal finance ledger. For those of you who are not familiar with ledgers, they essential serve an accounting book for finances. Most ledgers you can buy that are used for personal finance are set up like an Excel spreadsheet, where the columns are the days of the month and the rows are different categories of things that a typical person spends money on (mortgage, phone, groceries, etc). The average ledger booklet has enough pages in it to cover a whole years of expenditures, making it easy to stay consistent because you only need to purchase one every year.
Success with any endeavor you take on requires a certain amount of consistency, so the same goes with staying on top of recording your daily expenses in your ledger. When you’re first starting out, it helps to collect all of your receipts for the day in your purse or wallet so that come night time, it’s a lot easier to recall where your money was spent. Also, for those purchases that don’t always have a receipt attached to them, you could carry around a little pad and pen with you to record your expenses. Writing down what you spend immediately after each time you make a purchase can get a bit annoying at first, but it’s important that you do this before trusting your mind to remember the dollar amount of all of your expenditures for the day.
Having a ledger that you consistently use and maintaining a sound budget go hand in hand. Writing out what you spend each and every day gives you some perspective of how much you’re shelling out compared to how much you’ve budgeted to spend that month. To check up on myself, I calculate that amount that I’ve spent at the end of every week. If at the end of the second week, for example, I find that I’ve spent 50% of the amount of money I had budgeted for groceries, then I know I’m in a good place. Conversely, if at the end of the second week I’ve spent 75% of the money I had allotted for lunch expenses, I keep in mind that I have some cutting beck to do for the remainder of the month.
I have tried my hand at computerized programs such as Quicken (which is great, by the way) but even if you do use programs such as this, I still believe that it’s important to have a ledger booklet handy. It’s always easier to open up a booklet at the end of the day and jot down a few numbers before you go to bed than it is to start up the computer and enter data.
What I like to do at the end of the month on a weekend (when I can set aside an hour or so) is tally up all of my expenses. The way that I go about doing this is to first add up the amounts for each category, then compare that number to the amount I had budgeted for that category (ex. I may have spent a total of $60 on transportation when I only had $50 budgeted, meaning I was $10 over budget). After comparing those two figures, I decide what spending adjustments I need to make going in to the next month. Following the calculation of how much was spent in each category, I add up all of the categories together to see how much was spent in total during the month. What I then do is compare this figure to the income that I brought in for that month. In the beginning, I was surprised to find that I often spent MORE money than I was bringing in. As time passed, I got smarter about my spending and got real about how much I was making each month and am now in a place where I most often have a surplus at the month’s end. Taking responsibility for how much I spent made all of the difference.
When you’re done with all of your monthly calculations, organize the information you’ve compiled in some type of document on the computer (preferably Microsoft Word or Excel) in a way that makes most sense to you. Try to fit everything onto one printed page, if possible, and print in out for your records. If you’d like to put together file folders for your personal finance accounting, that works well, but you can also take much simpler routes such as filing your records away in 1/2″ binders. Whichever method you choose to use, be sure to organize everything by year (January through December). So, for example, if you decide to use the binders, purchase a new one for every year and label the front by year. In five to ten years from now when you look back at your old accounting records, you will be pleasantly surprised by how far you’ve come.