The key to financial success starts with successfully managing your household finances. If you’re not keeping an eye on where your money goes every month, it’s bound to wander right out of your wallet into the unknown. Keeping an eye on every purchase and payment as you spend the money is a wise decision, but if that feels too much like hard work, there is an alternative.
A monthly review of your household finances can help you keep track of your spending and make sure you’re not overspending in one area of your life while neglecting to put aside savings for an emergency. Here’s a brief explanation of why you should track your spending once a month and a description of how to do it.
Start with your monthly statements
Once a month, gather up your most current bank and credit card statements. Go through them line by line, and identify what you’re spending your money on every month. It may help to use different colored highlighter pens and assign a different color to every category. For example, green could be for bills, pink for luxury expenses, yellow for groceries and household items, etc. Mark each line item with the appropriate color and then you can assess your spending.
If you see any errors or charges you didn’t make, call your bank or credit card company right away to have them corrected.
Figure out where your money goes
It’s easy to see at a glance where you’re spending the majority of your money when it’s organized by color, so look to see if you’re spending too much in any one area. A good rule of thumb is to spend approximately 50% of your income on necessary things like bills, groceries, and household items, 30% of your income on luxuries or “wants,” and 20% should go into some sort of savings such as a savings account or retirement account.
To figure out what percentage of each category you’re currently spending, add up the number of each color that you’ve marked, then total them all up. Divide the number of each category by the total to get the percentage overall to see what percentage of your income is being spent on each category.
Adjust as necessary
If you see that you’re overspending, you can make a conscious effort to change your spending habits and improve your household finances before it becomes a problem.