Simple Steps To Getting Your Personal Finances In Order

By FutureNestEgg | June 30, 2008

Lot of people don’t have control over their finances. They might wish to get things back in order but for most of them they don’t know where to start from . They find it a very daunting task. The fact is it is not half as hard as you think it is. All that it needs is a firm commitment on your part and couple of hours of extra work.

My tip is to take it one month at a time – I have outlined below the things you need to do every month for the next 12 months…

Month One:

1. Get A Budget Spreadsheet ready. Track all your income and expenses for the month. All expenses (cash withdrawals, credit card expenses) And all income (salary, property, shares, government refunds etc).
2. At the end of the month, categorise your expenses – example: 400 dollars on Utility Bills, 150 dollars on Health Insurance, 200 dollars on Eating Out etc etc

Month Two:

1. Do the same as month one.
2. Apart from categorising, also see how your spending in each category increased or decreased over the previous month.

Month Three:

1. Do the same as month two.

Month Four:

1. Do the same as month three.
2. Set targets for various categories…example only 1000 dollars on groceries in a month. Set targets only for categories on which you have control – remember you will have control on most categories (electricity bills, groceries, eating out) except may be for some odd ones like school fees….
3. Set a reasonable amount of money towards savings each month – Open a mutual fund or any other investment vehicle of your choice and put that money into that account.

A couple of tips on Target Setting:

1. When you set your initial targets for categories be sure that it is not too far away from your actual spending – Example over the past three months if you spent around 500 dollars on groceries each month, then don’t set a target like 100 dollars…There is no way you can reach that target.

2. Review your targets at the beginning of every month and see if you can reduce it further.

3. The aim of this exercise is to lead a healthy and financially fulfilling life – the aim is not to bring all spending on necessities to zero – example, we can all save a lot if we spend very very minimal on groceries – but we don’t want to do that – you will know what your optimal spending is for this category – so try and aim to achieve that.

The aim from this month onwards is to stay within the targets…So at the end of month, highlight the categories that exceeded the targets – Analyse them and understand why you went over targets.

There are only three reasons for exceeding the target:

1. Your initial target was very unrealistic – in this case analyse your expenses over the past months and set a more reasonable target.
2. Some unexpected expense in that category – in this case there is nothing much you can do about it – try and reach the target in the following month.
3. No conscious effort – This is probably the most common reason. Make a better effort in the following month – remind yourself that you failed to reach your targets but will do better next month. Also try and do your budgets every week or every fortnight – this way you will be more in control.

Month Five:

1. Do the same as month four.
2. Pick one major spending and analyse and review it and see if you are doing the right things…Like one month pick – insurance – review what you are paying and if you are covered for the right amount/benefits – analyse if you are really in the right cover – shop around and see if you can move to a better one – many times what you are currently on could be the right one for you…

Month Six To Twelve:

1. Do the same as in month five…

Just by going through your finances every month you will get a good picture and understanding of where your money is going. For a few months these things can be a chore but soon it will become a practice. ‘Wasting Money’ and ‘Spending On Unnecessary Things’ will be a thing of past.