Where Does All Our Money Go? | Home Budget | Personal Finance
Where Does All Our Money Go?
Do you know where your money goes? You say, "house payments, car loan, utility bills, and food." But after that, things begin to get a bit fuzzy about where the rest of it goes. Right?
After you have set your goals, as in (Financial Goals | Plan Your Money For Future | Home Budget) the next stop is to learn where your money is being spent before you can make a realistic financial plan. This might be a hard job for some people, others will find it to be very rewarding. No matter how you feel, it MUST be done before you can start to develop your own plan. This information is essential for high quality future financial decisions. Invest the time now for a better payoff later.
What Do You Owe ?
It is necessary to list all of your credit obligations before you can go on to analyze your total financial situation. Enclosed with this lesson is worksheet called "How Much Do You Owe?". By filling out this worksheet first, you will have a clear idea of all of your credit obligations--both loans and credit card use. After this has been completed, the next step is to analyze your cash flow.
What Is Cash Flow?
Your cash flow is simply the money going into your pocket and out again. It is matching up your income with your expenses. Sounds simple doesn't it? It really is, but very few people take the time to keep track of what actually comes in and goes out each month.
The second worksheet with this lesson is called "Income and Expenses." For the most accurate look at your budget, expenses and income for an entire year should be done. That's really a lot of work! But, just to get you started learning what records you will need, this worksheet provides space for two months. When you see how important it is to keep these records, you may want to contact the Extension office and purchase a Home Account Book for continuous record keeping.
The first thing you will need to do is take the time to collect all of your bills, receipts and check ledger which will help you monitor your spending for the month. (It could be last month's, this months, or both.) Include both fixed and flexible expenses. Do you know the difference ?
FIXED expenses are items such as rent, mortgage, car payment and other regular installment payments that basically stay the same each month and for which you are committed for a period of time.
FLEXIBLE expenses are the expenses that change from month to month such as food, clothing, utilities. You have a bit more control over some of these items.
If you have recently become self-supporting, or are starting a household for the first time, it may be difficult finding complete records. Do the best you can for now and start keeping track of as many expenses as you can. The more accurate and complete the worksheet, the easier and more effective your financial planning will be.
If your income exceeds expenses, you will have money to put into a savings plan to use towards achieving your financial goals. However, if income does not cover all expenses, see what you might do to increase your income or decrease your expenses. Take a look at your budget to see if you can find some spending leaks. We'll be discussing this problem in an upcoming lesson.
The most critical time to try and control fixed expenses is before you commit to the obligation. Are there other options you need to consider? Is there a way for you to reduce some of your flexible expenses?