Money can be a tricky thing. It feels like it slips through our fingers like water. Sometimes, it’s easier to ignore where it all goes. However, learning how to figure out expenses is the first step toward taking control of your finances and building a solid budget.

This post will guide you step-by-step on how to figure out expenses. Did you know that many US households don’t have enough in their savings account to cover a small emergency? We’ll look at practical ways to track your spending, categorize your expenses, and finally, build a budget you can stick to. Getting a clear picture of your financial situation is important. 

Gathering Your Financial Information

This first step might feel tedious, but it’s unavoidable to discover where your money goes. Gathering your financial information will help you tackle credit card debt, start savings, and create a budget.

Collect Those Documents

Grab everything related to your money. This includes bank statements, bills, receipts, credit card statements, and investment account information.

You want every single detail. Sometimes manual data entry in expense tracking contains errors, so you want to make sure you have the most accurate information.

One way to remove potential errors or manual mistakes is to consider setting up automatic payments from your checking account to streamline things.

Review Past Transactions

Go through your statements. Check online banking transactions and your credit/debit card history. Aim for at least three months back – this captures spending patterns beyond monthly bills.

Remember to review any employee benefits you receive. These can impact how much disposable income you have each month for a savings goal.

Tracking Your Expenses

Tracking means actively recording where every penny goes. Think about your daily coffee, bus fare, snacks, monthly subscriptions – list everything. This helps determine areas where you might trim expenses to build an emergency fund.

Simple Ways to Track

• Use a spending tracker. Many free templates online automatically add up totals, saving time and improving accuracy.
• Budgeting apps automatically sync with accounts. This makes managing your cash flow easier. Make sure any app you choose is from a reputable source. There is great value to these apps beyond tracking, too.
• Use a pencil and paper. Record your daily expenses in a notebook and categorize them at the end of the day.

Establish a Routine

Set a daily or weekly time to update spending records. Do this even when life gets chaotic.

Once you develop the routine of managing personal finance, tracking expenses starts to feel less like a chore. It becomes more like a financial planning ritual.

Categorizing Your Expenses

Categorizing is crucial. When budgeting, separating expenses by type clarifies needed changes.

Categorizing is essential for building a personalized budget calculator and seeing where your money is going and tracking your monthly expenses.

Fixed Expenses

Fixed expenses stay about the same monthly. Examples include rent or mortgage payments, car payments, insurance premiums, and student loan payments.

Knowing your fixed expenses helps plan big purchases using cash flow from your budget.

Variable Expenses

Variable expenses fluctuate, including groceries, utilities, and gas. These change monthly based on usage, family activities, or unexpected events like medical bills.

Discretionary Expenses

Discretionary expenses, while fun, can affect saving. Examples include dining out, subscriptions, entertainment, and personal loans.

These costs are often the first place to look when trimming expenses and getting out of debt.

Building a Realistic Budget

Building a budget allows you to achieve short-term goals. This can be important while saving for bigger purchases down the line. Having a budget will help you prioritize your spending and potentially put money into money market accounts. Here are some examples of budgeting methods to help you get started:

50/30/20 Rule

This principle suggests allocating your monthly income as follows:

• 50% towards “needs”: housing, groceries, insurance, minimum payments on credit cards.
• 30% towards “wants”: travel, gym memberships, dining out.
• 20% on savings/debt payments: building an emergency fund, higher percentage debt repayment, investments.

Zero-Based Budget

This approach assigns every dollar a category. All cash flow is accounted for within the budget.

Zero-based budgeting is very detailed. It gives a clear view of your income and expenses, useful when dealing with student loans or planning a large purchase using cash.

Automate Bills

Use bill pay to avoid missing due dates for rent, mortgage, subscriptions, and utilities. This also keeps track of your payments from your savings accounts and checking accounts. Create an expense calendar to visualize all upcoming expenses.

There’s no shame in using any help available when paying down debt. You can also use debt management tools to help automate payments for your mortgage, auto loans, and student loans. These tools will let you align your paydays with your withdrawals, so you can make sure you have enough money to pay for your debts. They can also help you set up weekly or bi-weekly payment schedules, which can speed up debt payoff and save on interest.

The Importance of Emergency Savings

Having a solid emergency savings fund is crucial for maintaining financial stability. It’s a safety net that can help you avoid going into debt when unexpected expenses arise. Aim to save 3-6 months’ worth of living expenses in your emergency fund. Consider keeping your emergency fund in a high-yield savings account, which earns a higher interest rate than a traditional savings account.

Make sure your emergency fund is easily accessible in case you need to use it quickly. Building an emergency fund takes time and discipline, but it’s a crucial step in achieving financial stability.

Review and Adjust

Regularly comparing your actual spending versus your planned budget is a crucial step in maintaining a healthy financial routine. This process keeps you on track and makes course-correcting simple, as your needs and expenses can change from month to month. By regularly reviewing your budget, you can:

• Identify areas where you can cut back on unnecessary expenses
• Adjust your budget to reflect changes in your income or expenses
• Make sure you’re staying on track to meet your long-term financial goals
• Catch any errors or discrepancies in your budgeting

Regular budget reviews can be done weekly, bi-weekly, or monthly, depending on your personal preferences and financial situation. The key is to make it a habit and stick to it. By doing so, you’ll be able to make informed financial decisions and stay in control of your money.

FAQs about how to figure out expenses

How do you calculate personal expenses?

Gather all financial documents (bank statements, bills, receipts). Track every expense. Categorize your expenses (fixed, variable, discretionary). Use this to build a budget aligning with financial goals.

How do I figure out my spending?

Review bank and credit card statements and track daily expenses. Use budgeting apps, spreadsheets, or notebooks. Pay attention to small, regular purchases that add up. Categorize spending to see where your money is going.

What is the 50 30 20 rule?

The 50/30/20 rule suggests budgeting: 50% of income for “needs” (rent, utilities, groceries), 30% for “wants” (dining, entertainment), and 20% for savings and debt repayment.

How to calculate total cost and expenses?

Add up all expenses, including fixed, variable, and discretionary. This reveals where your money is going. It highlights expenses that might need adjusting in a budget.

Conclusion

Learning how to figure out expenses is about understanding where your money goes. It’s not about restrictions, but about gaining control.

Whether you choose budgeting apps, spreadsheets, or a notebook, tracking matters. Building a budget creates the financial present and future you envision.