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We’ve all been there before; we don’t really keep records of our income and expenses until the day we have to scramble to get the tax return filed on time. Not many households actually keep records of their finances. Those that do, however, enjoy a wide range of benefits.
There are plenty of benefits indeed. Managing debt repayments, regular bills, and even savings are much easier when you keep proper records. It’s really not as difficult as you – and me, not too long ago – think. So, let’s jump right in and see how you can get started with keeping records of your own finances, shall we?
Find a System That Works
Keeping records of income and expenses can be pretty tedious, so it is important to make the process as painless – and fun – as possible. Some prefer to use pen and paper. Others rely on smartphone apps. I even have a friend whose home accounting is done on a fully- featured accounting software on her personal computer.
Don’t worry about standards or rules; what’s important is that you can keep records of even the smallest expenses without getting bored after a few weeks. An app is probably the better option for most families since it will help you write down expenses as you make them using nothing but a smartphone.
Speaking of apps, a number of expense-tracking apps are now equipped with scanners and the ability to recognize receipts. You won’t even have to write things down. Just snap pictures of the receipts you get when making purchases and you’ll have your finances in order automatically.
There is one old trick that works brilliantly regardless of your personal financial state, and that is using multiple accounts to manage different expenses. Bank accounts with debit cards are best, mainly because you can use them directly when making purchases of a certain category. You can set up an account for groceries and everyday expenses, monthly bills, and for saving.
If you can’t set up multiple bank accounts or you don’t want to worry about the fees, you can also divide your income into categories using plain-and-simple envelopes. This would mean having to store more cash than usual, but you’ll have the ability to divide that money into separate envelopes based on what the money is for.
Start Making Budgets
After just a few weeks of managing your expenses, you should be able to see patterns. There are regular expenses you can now manage better. The next step is to start making budgets. Don’t forget to budget for annual expenses such as the renewal of insurance policies or home maintenance. According to New England College and its online masters in accounting department, most households who are capable of meeting their monthly budget still struggle with annual – and unexpected – expenses. In fact, the same master of science in accounting online department also found families with home businesses and multiple sources of income also struggle with the same problem.
Budgeting will give you more financial freedom. It allows you to take charge instead of just going with the flow. With a clear budget, you can control your expenses better, be more prepared for the unexpected ones, and have more options should you need to fill gaps between expenses and your next income. These benefits are why you need to start taking your finances more seriously