Have you ever found yourself wondering where your money goes? Have you ever felt like your money mysteriously vanishes into thin air just days after it was deposited into your bank account? If so, you are not alone. In the United States, research has found that 61% of adults don’t keep track of their money or don’t understand where their money goes.
If you are wanting to get out of debt, save money, or better understand where your hard-earned money is going, the most important thing to do is to create a plan that clearly identifies how much you earn each month and how much you spend each month.
If you think this sounds like creating a budget, fear not. Tracking your income and expenses isn’t a budget, but rather an important exercise to help you understand how much you make each month, how much you spend, and how much you have leftover.
The easiest way to understand your financial habits and track your money is to write down or create a spreadsheet of:
1. Monthly bills and expenses: these are things you pay for on a monthly basis, including rent/mortgage, gas, food, cable, utilities, insurance, phone, etc.
2. Annual and/or quarterly bills and expenses, including Amazon Prime, Costco Membership, etc. Understanding how much you spend on quarterly/yearly expenses will help you determine how much you should put aside each month for these annual/quarterly bills.
3. Monthly net income: add up exactly how much you bring home in net income; this is the total dollar amount after all deductions, including state/federal taxes, 401K, social security, healthcare, etc. Do not focus on the gross income (before deductions).
4. Understand your income: once you know exactly how much your monthly net income is, you should then deduct your monthly bills from your monthly net income.
5. Pay off debt and save! When you have a clear understanding of your remaining dollar amount, create a plan of attack where any extra cent goes towards your debt or into a savings account. Even if it’s only $20, every penny counts!
You can track your income and expenses by downloading these forms: