We know that trying to stay on track with personal goals and finances can sometimes be overwhelming. However, setting the right goals isn’t enough sometimes. You need to have the perfect picture of what your income and expenses are, as well as how they are distributed throughout the month.
Since you’re using Spendee to budget, you’re already on the right track! But what more can you do to make the most of it?
First, divide your expenses
Mandatory expenses (bills, utilities and rent) are usually due monthly, but variable spendings (your “wants”) occur more frequently. It’s the crucial part, because it’s easy to lose track of, if not managed consciously.
Personal financing is very similar to managing a company. Every businessman or businesswoman knows their fixed costs and variable costs to make their profit ongoing and growing. In the short run, they need to make sure that all of their fixed costs are comfortably covered — while they operate with variables to manage revenue. If you want to be your own boss successfully, keep reading!
Our personal variable costs are spendings — groceries, clothing, gas or entertainment. It’s where you can make the biggest cut when budgeting.
Lets see how we could help out our friend Tom with his budgets… it looks like his mandatory expenses this month were 614 euros.
On the other hand, his variables (“wants”) were 540 euros.
What are the next steps for Tom to make the most out of his money? First, he needs to realize the interdependence between weekly and monthly budgets.
Change monthly to weekly budgets? No, use them both!
When solving any problem, “helicopter view” helps anyone in seeing the big picture. Keeping track of all your expenses on a monthly basis allows you to have control of your finances and meet any financial goals you have for yourself. That being said, you shouldn’t get rid of your monthly analyses straight away, just learn how to use both budgeting strategies!
Monthly budget should exist for tracking all categories together — whether they are mandatory or wants. Monthly bills are easy to reflect in your monthly budget, that’s why you can track them all together! Expenses left after your monthly bills, debt repayment and savings need to be broken down.
Working with what you have left is a bit harder at first, but we promise it gets easier and more efficient very quickly! With variables, we highly recommend weekly budgeting. When you do weekly budgets, you begin to see very quickly how each purchase is a trade-off.
All you need to do is reconsider the weekly limit for each category. What’s the easiest way to do it? Look up your category expenses per month and divide it by four. That’s your weekly budget! But don’t worry, you can rollover any money you don’t spend into the following week. It’s up to you whether you want to track all variables in categories separately or use one budget altogether.
Our friend Tom’s weekly budget was 540 / 4 = 135 euros. He just summed up variable expenses per month and divided it with the number of weeks per month. He can also choose to do it for each of the categories, for example, Groceries would be 260/4 = 65 euros.
He decided to set his weekly budget per category:
At the end of the period, he spent 55 euros, and that’s 85% of the budget! That’s great because now he can move the remaining 10 euros into the next month.
This is a much better strategy for Tom, to keep him going week to week! When he manages to save money, he can move it to the next week. It isn’t only a great reward, it’s an amazing tool for deeper analyses of “what went wrong.” What if Tom goes over the budget? He can either raise the budget because of his inaccurate estimate, or be a bit more strict about his spendings in the next week. Are you getting the hang of it?
Good luck with budgeting! Having a general idea of the inflow and outflow of your money is vital for responsible money management! So stay motivated and disciplined to keep going. It’s much easier to grasp a smaller amount of transactions, than to battle with monthly overviews. Try it out this month and see how much you save! What kind of budgeting schedule works best for you? Let us know in the comments!