Spring is here, and so is the season of the tax return. If you are like many of my clients, the process of preparing your return can mean facing up to the reality of your financial situation in a more focused way than at any other time of the year. And often this is when the resolutions about taking financial control begin. You promise yourself that you will start budgeting properly as of now, that you will whip your finances into shape immediately and generally prepare better for next year.
Sound familiar? Well, don’t panic. Taking financial control is all about financial accountability, and it really isn’t as difficult as it seems. But you do need to understand where you are spending your money, and that takes a little bit of discipline and consistency.
Here are my five easy steps to get you started.
- Keep all your receipts, paper and online, everyday
Starting on a Monday, keep or print out all of your receipts. And that means all of your receipts. It’s amazing how the little things can add up, so you need to start by understanding exactly what you spend.
For example, all those $1.99 purchases on iTunes can really add up, not to mention the $10 shoes that were such a bargain on eBay. It’s also true that in an increasingly online world, letting money slip through your fingers is easier than ever, and taking these online receipts back to a paper-based system can really help you keep track.
- Put all of your receipts into an envelope at the end of each day
- At the end of the week, tally up all of your receipts and put them into relevant categories
It is important to understand how much you spend on what, and this means dividing your receipts into categories.
The budget planner I give my clients divides expenses into fixed expenses, which include items you must pay, like rent, mortgage repayment and electricity, and discretionary expenses, which are the items over which you have some control. These include entertainment, gifts, clothing and holidays, amongst others.
To get a really good picture of where your money is going, it is important to make your list of categories as detailed as you can, without going overboard of course. There are any number of examples of budgets available online, so choose one which appeals to you.
And remember, the whole family needs to be part of this exercise. If you have a partner who is a sneaky online spender, or children who are keen on downloading games or music, they also need to give you their receipts. You might be in for a surprise when you tally it all up.
- At the end of the week, file the tax receipts and shred the rest
- Repeat… for one month
The amazing thing which many of my clients report is that simply by focusing of what they are spending they start to become accountable to themselves. The groceries spend starts to go down every week, just by virtue of knowing how much they are actually spending. Sounds ridiculous, I know, but you’d be surprised.
Of course, it is inevitable that you will slip up, and it’s true that sometimes the receipt cycle is just one more thing you can’t fit in. That’s fine, and you don’t have to do it every single week once things are a bit more under control. However, if you feel yourself descending back into the black hole, start the weekly receipt cycle again. You will begin to feel better in no time.