After you have looked at your living expenses, many financial experts believe you need to create a budget. However, for most of us, this doesn’t work. This is because people struggle to stick to them. It can be difficult to track every single purchase you make, and even if you are successful at sticking to a budget, it may not stop you from spending because a budget tracks what you have already spent, rather than looks forward at what you are going to spend.
Once you have split your income into the categories of fixed costs, investments, savings and guilt-free spending, look at “conscious spending”, a strategy that forces you to look into the future.
Fixed costs, expenses like rent, groceries and utilities, will require 50% to 60% of your income, while savings for goals such as vacations or a down payment on a home will make up 10% to 20%. The last 20% of your money can go toward guilt-free spending.
A Guide to Household Expenditure by the Percentage
As a guide, below are some rough percentages of spend based on an average household income:
- Housing: 30%
- Utilities (power, gas, water, broadband, phones): 5-10%
- Transport: 5-10%
- Insurances: 5%
- Food: 5-10%
- Savings: 10-20%
- Guilt-free spending: 20%
Why It Works
By allocating your money in this way, you pay off all your fixed costs/responsibilities first. Rather than worrying about the expenses to cut back on right away as per a budget, you can set up regular transfers into a savings account and then any money left over in the spending category can go towards other savings or everyday spending. The guilt-free spending category allows you to buy what you want after your other important expenses are paid.
Where to From Here?
Given most struggle to stick to their budget, ask yourself where you want your money to go, and work forward from there, prioritising where you want your income to go.
If you want to get ahead financially, you need to create a spending plan and then review it regularly. This will mean tracking all of your expected income and expenses and putting them into categories (food, shelter, clothing, transportation) for the whole week or month.
Here we go into detail about why it is so important to track your expenses, and how technology can make the process easier for you.
Why Should You Track Your Expenses?
Budgets are blown when you don’t track and review your expenses. Tracking your expenses can help make sure you don’t overspend in any area. When you record an expense, make sure you keep track of how much is left in that category. This means that if you’re married, you need to make sure you’re both recording all spending and checking in with each other before you spend.
If you aren’t tracking your expenses, you don’t know where your money is really going. You’ll run the risk of continually setting unrealistic budgets, and you’ll never meet your money goals.
Record Your Expenses Every Day
Keep up with your spending by making a record of your expenses every single day, at the moment of purchase, if possible. However, with the multiple ways we pay for our living expenses (credit cards, debit cards, cash, account transfers, to name a few), recording expenses using the old methods such as pencil and paper, a notebook, spreadsheet or paying for everything using a cash budget, can be unreliable and almost impossible to maintain.
Use Technology to Track Your Expenses
Technology such as websites and budgeting apps can provide a helping hand when it comes to recording and tracking your expenses. There are a number of new apps available from banks and third-party providers that can assist by consolidating and categorising all your spending and expenses in the one place – and many of them are free. You can log in on your phone and track the expenses mere moments after they occur. Many even link to your existing bank accounts to streamline and update your transactions.
The starter version of my secure online Wealth Portal, available for free from my website, can help you keep track of all your income and expenses in the one place and manage them on the go. Within the Wealth Portal, you can set budgets and goals, making it easier to keep your finances top of mind and highlighting areas you may need to adjust. We now also offer the ability to link your bank accounts for free, making the tracking process even easier.
Make Tracking Your Expenses a Habit
No matter the method, you have to make tracking your expenses a weekly or monthly habit to gain control of your finances. If you aren’t watching where your money is going, you’ll always be wondering where it went. Once you set yourself up with the right tools and habits, you’re one step closer to achieving your financial goals.