this post is a bit long, but stick with me and i promise you’ll get some easy and practical advice that will help you take control of your finances!
i’ve always been interested in personal finance. even as a kid, i devised a little record keeping for savings. as a college student, i wasn’t the best at being frugal unfortunately. i also made a pretty bad car purchase when i finished school. we live and we learn… hopefully.
there are a zillion ways to keep a budget and i’ve done everything from absolutely nothing to recording every single expense and reconciling my bank account to the cent. i’m an accountant so i can obviously obsess over details..
but my suggestion for everyone is very simple and effective. it’s not demanding. it’s not extreme. and it’s customizable.
all you need is two pages in google sheets (which is free on your computer and free to download as an app on your phone).
let’s get started!
the first page should be a summary of your current balances. make a seperate line for each bank account, pension account, a fair estimate of your car value, a fair estimate of your house value, etc until you’ve listed all your assets. make a sum total of that. skip a line and do the same for all your debts, listing each on a seperate line and making a sum total of all the debts. skip a line. now on a seperate line further down subtract your total assets from your total debts and call that line your net assets (or equity). now you have your balance sheet! ta da! you can tweak it as you go along and see how you like it. maybe you want to arrange the page differently. from time to time, maybe monthly, update these balances just so you know how you stand and so you have a good track of all your accounts.
here’s a made-up example:
the second page will summarize your incomes and expenses and how all your bank account rolls forward from one month to the next. it will also be a forecast so you can make goals and see where you’re going and how much money you’ll have by say the end of the year. at the top of the first column, write the month name. then under that write beginning balance, and state your beginning bank balance that month. then start going down that month by listing your salary and other incomes you expect. move on to expenses by first listing all your fixed expenses like direct debits for rent or mortgage, electricity, cable, water, car, gas, etc until you list every expense you know you’ll have in a given month. some things you’ll need to estimate based on what the bill normally comes to. create a row for food or split that in two rows like groceries and eating out. this doesn’t need to be super exact or detailed. It should give you a view of all expenses and how much of your salary you save in a given month. always include a miscellaneous expense row, because there will always be unexpected costs. you want your expense total to be accurate, not some lofty goal where you magically spend 90% less than normal. at this point, you’re not trying to cut down on expenses; you’re just trying to make a reasonable record of your income and expenses. sum all this up from beginning bank balance plus incomes less all your expenses and the result will be your estimated ending bank balance. now you’ve just created a forecast for where you’ll be one month from now! now copy those columns several times over for the next month, and the next next month, and go on until the end of the year so you can start to have an idea of what your bank account will look like by the end of the year. remember that one month’s ending balance is the following month’s beginning balance; that’s why it’s a rollforward.
as you do this exercise over time, you’ll get better at estimating your expenses and eventually controlling them.
once the month is over, just do a simple cleanup so that your ending bank balance is correct; you don’t need to be super exact and you can even just plug the difference on a row to force the ending balance to be right if you like. what’s more important is that you reconsider the coming months in your forecast and whether you have estimated those expenses reasonably. are there some expenses that only come once or twice a year? (vacation, taxes, insurances, etc.) put those in somewhere even if you don’t know the exact timing or amount. we just want to be as close as possible so we can see where we’re going.
notice that i haven’t written anything about cutting expenses. i’ve just described to you how to keep an easy record of your incomes, expenses, and account balances. the rest will sort itself out. when you see what you’re spending, you’ll begin to question it. by the same logic, when you see the forecast of what your savings can be by end of year, that will become a financial goal for you to aim for.