In the post on 4-step approach to create your budget, I briefly discussed the need to track expenses as the basic step in budget preparation. Budgeting is one smart way to manage and control your expenditure. For a very long time, you may be wondering where your hard-earned money goes. You take your pay check and before you realise, everything disappears. As a result, you end up in debt due to the burden of loan to supplement your income, which can further delay or prevent you from achieving financial independence. Fortunately, there is a way out to avoid living beyond your means. It starts by paying attention to what you spend your money on.
To control your expenditure, it is important to have a clear idea of where your money goes. In other words, you need to know exactly what you spend your money on. Tracking your expenses over a period can help you to determine how much you spend on various aspects of your lifestyle. This however requires some effort in the form of discipline and consistency.
Control your expenditure with Spf expenses sheet
Spf expenses sheet is a simple spreadsheet template that can be used to keep track of your expenses. The expenses sheet is editable to suit the needs of different individuals. Basically, it consists of two sections:
While the INCOME section is simplified to cover all incomes earned, the EXPENSES section is expanded to cover different spending categories. These include Utilities (electricity and water), Rent, Groceries, Entertainment, Education, Health and Medicals, etc. You may therefore be able to record your expenses in the appropriate category based on what you spend on. For example, if you purchase some paracetamol tablets due to headache, you can register it in the ‘Health and Medicals’ category. Similarly, expenditure on your children’s fees can be added to the Education category. Any other expenses not categorised can also be recorded in the MISCELLANEOUS category (Refer to the figure below).
Spf expenses sheet progressively calculates your percentage of income spent, as you keep adding data. For this reason, it would be advisable to record only active sources of income if you are actively employed. This is because adding passive incomes can inflate your income level and artificially reduce the percentage of income spent, which can consequently increase your potential of spending more.
The expenses sheet further creates a pie chart of the various expenses on each category in percentages. Refer to the sample chart below.
Updating the expenses sheet
It is advisable to update your expenses on a daily basis. By postponing any update for several days, you may forget and skip some data. You can initially list your expenditures in a pocket notebook, diary or notepad on your smartphone and finally register them in the spreadsheet at the end of the day. If you make purchases that come along with receipts, keeping them can be also useful to avoid missing any expenses.
Reviewing your expenses
Once you have gathered sufficient data about your spending, you can spend some quality time to evaluate the data trend. This can then guide you to identify improvement opportunities to decrease your expenses. Obviously, you need to understand a problem before you can confidently solve it.
To make this easier, you can refer to the pie chart for the expenses. The chart computes and displays the average amount you spend on each category as a percentage of your total expenses. It would be interesting to notice how some categories are eating away much of your income. As you review your spending history, you can take some necessary actions on the way forward. You may decide to cut down your expenditure on certain categories if you’re not happy about their historical trends.