Keeping score is not about tracking your calorie intake or how many glasses of water you drank today, rather we are talking about your daily accounting.
If you are someone who is scared of numbers and doesn’t want to do any tedious money management, let’s bust that myth first; your daily accounting is neither tedious nor something that should scare you.
It’s less about numbers and money, more about building a habit and creating awareness.
Effective money management has two sides, managing income and managing expenses. In the income side, your focus is on your job, salary and your investment income. On the other side are expenses, how much of the money that comes into your household do you spend and are you overdrawing on your income?
Awareness of the expense side will help you understand your needs better and also tighten strings in times of uncertain or slowing income.
In today’s dynamic world, your control over the income side will waiver from time to time, but the reins on the expenses side are likely to be in your control (barring medical emergencies) most of the time.
This is why it’s important to keep your daily accounts so that you can exercise the exact level of control when you need and loosen the grip when you feel it’s the right time.
Let’s see how we can make keeping accounts a simple task.
1. Break it up
Keeping accounts is most effective if you don’t pile up the receipts. To do this you will have to focus on two things. Firstly, start making note of your daily expenses. Ideally, you should be able to choose whether you update accounts every week or month or daily. Monthly accounting may sound appealing to you because earnings are also monthly. However, remember we mentioned the idea of building a habit, to do that you have to start focusing on daily expenses.
Think about it, if you want to change your eating habits or your exercise habits, you will have to bring about some change in your everyday menu and exercise routine. The change will not happen if it’s done once in a while.
Use the same logic for your money life, if you want to make a difference and change the way you utilise your money, then you will have to start with daily changes.
That’s the first step, break up your account keeping into daily buckets and start writing down all the expense at the end of the day.
Secondly, break up expenses as per categories. There are expenses which are necessary like buying groceries, fruits and vegetables and then there are those which can be discretionary like buying the fourth pair of running shoes. It helps to break up your expenses into categories firstly based on need versus want and secondly, based on the mode of payment. You may be paying by cash for some things and using your credit card or net banking for others. Make a note of this too. Let’s, say you have categories like food, clothes, eating out and so on, within each category too, there will be expenses which are not necessary and more an indulgence. Make sure you mark those out too.
Breaking up your expenses in this manner can help you identify exactly where you are going overboard and where you can get more efficient with managing your money.
2. Write down the big spends too
One efficient way to do this accounting is to have a calendar-like approach. Make your accounting sheet for a month and within that break up your categories and note down your daily expenses. At the same time also make space for the big monthly spends where you note down expenditures like salaries for household help, fees for kids’ extracurricular classes, utility bills and any other such recurring monthly expenses that happen.
Matching up your daily expenses together with these monthly spends is also important. Together they will give you a complete picture of your discretionary and utility expenses in any given month.
Over time this kind of accounting will help you have a better understanding of how much you need to cover your household expense every month. In turn, this will help you build savings firstly to put aside as your contingency or emergency fund and also savings towards your long-term wealth creation goal.
3. Find a comfortable format
Personally, I find it useful to create household accounts on the Microsoft Excel application. If you find that your mind fogs up at the mention of Excel, then no need to worry, you can use a simple digital notepad. Alternatively, there several mobile applications which are built for this very purpose, to help you manage your monthly household accounts. These applications are found on both Android or iOS and you will be able to keep track of daily and monthly expenses, breaking them down into categories.
If neither of these options works for you, just go to your nearest stationery store and buy a regular ruled notebook. Do this account keeping the way my mother did by noting down each expenditure in a book with a pen and keeping the receipts for at least a month to ensure that the cash balance at the end of the month tallies.
The objective, more than to tally the cash balance in your bank after all the spending, is also to enable you to be aware of where you are spending and whether there is scope for you to save more, utilising that effectively towards wealth creation.
It will also help you to know this detail if there is an income emergency which is out of your control.
Keeping accounts of your household expenditure is a boring job and on days where you are tired and cranky by the end, it will seem like an uphill task. However, making it a habit by doing this every day can help you resolve many of your money insecurities and financial anxiety. Awareness is the first step and keeping an account will definitely help. You can do this either at the end of each day for that day’s expense or at the start of each day for the previous day’s expenditure.