Get Organized
Let's understand the concept of "My Balance Sheet":
My Balance Sheet = My Expenses + My Savings
My Expenses
All your expenses fall in 2 categories as shown below -
Fixed Expenses
Variable Expenses
Fixed Expenses
- Apartment Rent or Home Mortgage payment
- Auto/Home Insurance payment
- Other Loans like Auto Loan, etc. payments
- Utility bills - electricity/phone/internet/etc
- Other expenses (typically recurring for more than 6 months/a year duration) - like enrolled in 2 year college program or pursuing undergraduate degree program, on-going medical treatment, etc.
Variable Expenses
- Groceries
- Household expenses - furniture, clothes, etc
- Dining outside, Movies, Recreational activities, etc
- Vacation
- Other expenses - Occasional visit to doctor, emergency expense, etc.
My Savings
Your income (from salary jobs, self employment, earned interest, investment, etc) are sources for your savings which fall in following categories -
Everyday Savings
Long Term Savings - Please see Long Term Savings section
Everyday Savings
- Checking
- Savings
- Money Market
- Other Online accounts
Long Term Savings - Please see Long Term Savings section
Things to remember:
Best practice is to move certain amount of money to savings account every pay period.
This account should have at a minimum, 3-6 month worth of balances equivalent to your monthly expenses
e.g. If you monthly expense is $2000/- then emergency account should have 3 months balance which is equivalent to $6000/-
Don't worry if you do not have that amount to begin with, you can always start to save step by step.
Bottom line you should know you overall income, expenses & savings.
- As a rule of thumb try to save 30% of your income per month
Best practice is to move certain amount of money to savings account every pay period.
- Emergency Savings account - Typically used for non-anticipated expenses like car accident, emergency trip for family member, etc.
This account should have at a minimum, 3-6 month worth of balances equivalent to your monthly expenses
e.g. If you monthly expense is $2000/- then emergency account should have 3 months balance which is equivalent to $6000/-
Don't worry if you do not have that amount to begin with, you can always start to save step by step.
- Your fixed expenses are your long term debt obligation which you need to pay off over time
- Your variable expenses are something you can control especially if you are going through rough time
Bottom line you should know you overall income, expenses & savings.
Tracking my expenses/savings.... this sounds very difficult!!!
At first it may sound a bit difficult and complicated but there are several easy ways to do this -
1. Always use debit card so all the transactions are recorded automatically in your bank statement
2. If possible and if it suits your habits, use credit card so all transactions are recorded automatically in your bank statement
Make sure that if you use credit card then try to pay off entire balance by statement due date
3. If you use cash for any transaction then you will have to record the transaction manually
4. Use online bill payment offered by many banks for free
Make this part of your daily habits:
This sounds like too much work!!!
1. Always use debit card so all the transactions are recorded automatically in your bank statement
2. If possible and if it suits your habits, use credit card so all transactions are recorded automatically in your bank statement
Make sure that if you use credit card then try to pay off entire balance by statement due date
3. If you use cash for any transaction then you will have to record the transaction manually
4. Use online bill payment offered by many banks for free
Make this part of your daily habits:
- Read your bank statement/credit card statement to ensure all transactions shown are indeed the one you performed and not shown by mistake
- Keep a record of your cash transactions
This sounds like too much work!!!
Easy method to Organize Daily Finances
If you use debit cards, credit cards and online bill payments then you may not have to do lot of manual effort to reconcile your finances. many tools are available now which can do this for you on click of a "button". However, you will need to setup your details such as bank accounts, credit card accounts, etc in the tool (personal financial software) which might take some time initially and then you are all set.
Check out "Comparison of Personal Finance Software" tools available, some of them are free.
Benefits of using Personal Finance Software -
If you are not comfortable using any of the above tools then you may want to check out "Microsoft Budget Templates" available for free.
In the end, stay informed about your personal finances, be aware of your expenses & savings.
Remember we are organizing to make our life easy and have peace of mind!
Check out "Comparison of Personal Finance Software" tools available, some of them are free.
Benefits of using Personal Finance Software -
- Get a complete up-to-date snapshot of your balances
- Generate numerous reports showing your expenses by category, payee, etc.
- One place to manage your personal finances
- Some tools allow you to add investment accounts, budget planner, tax planner, etc.
- All account updates are typically automatic with a click of a button along with provision to enter transactions manually
If you are not comfortable using any of the above tools then you may want to check out "Microsoft Budget Templates" available for free.
In the end, stay informed about your personal finances, be aware of your expenses & savings.
Remember we are organizing to make our life easy and have peace of mind!