Beginning to strike a yearly budget and track our family expenses, many years ago was far-and-away the single most important money decision we have ever made. It could be argued that “most important” should be a big-picture idea, like retaining a financial planner or developing a wealth-building plan, but for us, it was simply gaining an understanding of where the money was going. Indirectly, it made us focus our attention on saving for the future because we knew that was one of the things we should be budgeting for.
So, what comes first? Should you prepare a budget, or start tracking your spending first? Do both simultaneously is the correct answer if you are currently doing neither.
Identifying the types of expenses you incur over the course of an entire year may prove to be a bit of a challenge – especially those that don’t occur regularly and consistently like your fixed expenses. Not to worry, I will be posting a couple of follow-up articles to help you figure out what it is you need to track.
Once you have identified your types of expenses, you determine how much you think you will spend on each of those for the year. Estimating monthly amounts for each is how I do it. You will find that after doing this for a couple of years you will become very accurate at predicting your spending patterns.
The additional benefit of budgeting and tracking your spending is that it provides endless hours of entertainment as you negotiate the striking of the budget each year with your loved one, and then comparing the expenditures favoured by each member of the family. The Love-goddess loves to point out how much I spend on golf, and I enjoy commenting on how much is spent on her hair-repair each year.
There are many good reasons for adopting this strategy. Perhaps the most important is that it reminds you to stick to the basic rule of not spending more than you have coming in each year. It is very hard to hide money issues from yourself when you are budgeting and tracking your spending.
