Do you ever look at your bank statement at the end of the month and wonder, “where the hell did all of my money go?”
If so, you are not alone. But there is a simple way to fix the problem and answer the question – with a budget!
Madison Sharick, manager of financial planning at PNC Investments, knows why many are confused at the end of the month. She says it is because keeping a mental tab of your expenses just won’t cut it.
“People think they are spending less than they actually are,” she said, speaking to CNBC.
Taking an ad hoc approach to budgeting can leave you in the hole at the end of the month. This will shortchange your savings and push you into debt. To many, the dreaded “b” word may sound scary, but it doesn’t have to be.
So what should you do?
Don’t think of a budget as a burden, recommended Tiffany Aliche. Aliche is the founder of the personal finance website The Budgetnista. She is also the author of the upcoming book “Get Good with Money.”
Instead, think of it as a way to achieve your financial goals. “Your budget creates an environment to have the things you want in a way that is sustainable,” she said.
Creating a system to track your expenses doesn’t have to feel like a chore. Just find a method that works best for you, she adds. The key, Aliche says, “is to be honest and thorough with your tracking — yes, that cup of coffee needs to be noted, as does that birthday card for your mom.”
At the end of the month, you will have a line-by-line accounting of your finances. This will give you a clear picture of how much you are spending and saving.
To help categorize spending, Aliche places a “B” next to any fixed bills like rent or mortgage payments. She places a “UB” for “usage bills” on expenses that can fluctuate, like utility bills. She places a “C” next to expenditures that are a choice (and are the easiest to cut back on, like eating out or entertainment).
Isn’t There an App for All That?
Yes, there is – several, actually. Aliche says that if pen and paper aren’t your things, or you’re just not diligent enough to keep up with all your purchases by hand, technology can help track and categorize your spending for you.
Various apps and websites like Mint or PocketGuard will sync with your accounts to create spending reports. These tools work best if you do almost all of your spending through credit cards and electronic purchases.
Some credit card providers also offer breakdowns of your spending to give you a sense of where your money is going, but they’re usually limited to transactions you made with that account.
Finally, no matter how you prepare and maintain your budget, once you know where you have been putting your money, maybe you need some help figuring out where it should be going.
The 50/30/20 budget provides a guideline on how to divide your paycheck. 50% should go to required costs (for example, housing, groceries, utility bills), 30% to discretionary spending (travel, entertainment, subscriptions, etc.), and 20% to savings and debt.