"Okay, I want to be my own "Accountant" and manage my money well. But...where do I start?"
Here's 3 simple steps: -
Step 1 - Create a monthly budget
Budget the amount of expected income you earn and expenses that you expect spend on a monthly basis. You may do this on a piece of paper, in a notebook or an Excel spreadsheet.
Split your income by your income streams (salary from employment, salary from own business, dividends, bonuses etc.)
Split your expenses by categories (house, car, food, clothing, one-offs etc.)
Step 2 - Track your actual daily expenses
Record your actual expenses on a daily basis. Again, this can be done on a piece of paper, in a notebook or an Excel spreadsheet.
Step 3 - Compare your results on a monthly basis
At the end of each month, compare the actual expenses incurred for that month (in Step 2) against the budget that you set earlier (in Step 1).
Look for areas which you had overspent your budget significantly. Identify any large or big-ticket expense items which resulted in you bursting your budget. Then work on cutting down spending on that the following month.
Sounds simple doesn't it? Good!
Would you like a spreadsheet or template that can help you do all the 3 steps above?
If so, The DIY Accountant has developed "The DIY Personal Income & Expenses Tracker" just for you.
It allows you to do Steps 1, 2 and 3 above as well as answer 3 key questions: -
1. Did I save or overspend?
If you've saved, well done! Keep it up!
If you've overspent, it's time to revisit the large or big-ticket Expense items which resulted in you overspending and work on cutting down on that next time
2. Did I spend in line with my budget?
If you've spent within your budget, well done! Keep it up!
If you've spent beyond your budget, it's time to revisit the large or big-ticket Expense items which resulted in you bursting your budget and work on cutting down on that next time
3. Did I spend in line with the Money Jars System?
Compare the actual percentages against the percentages recommended by the Money Jars System. Are the percentages different by more than a 10% range?
If so, it's time to reflect and adjust your spending to align with the recommended percentages.
If you are spending too much on necessities, then Simplify!
If your FFA (Financial Freedom Account) is too little, then start allocating more to put into it. In other words, Save and Invest more!
Buy it now at https://sellfy.com/p/MQU0/
Or click here! Buy now
Friday, 12 June 2015
A Different Way To Look At Your Expenses
Expenses can be categorised to suit the Money Jar System. Think of all personal your expenses being split into 10 broad categories. I then fit each category into one of The 6 Money Jars.
Category 1 - Roof! - House related expenses
Money Jar: NEC ("Necessity")
Examples:
Category 2 - Ride! - Travel related expenses
Money Jar: NEC ("Necessity")
Examples:
Category 3 - Tummy! - Food related expenses
Money Jar: NEC ("Necessity")
Examples:
Category 4 - Fashion! - Clothing related expenses
Money Jar: NEC ("Necessity")
Examples:
Category 5 - Health! - Health related expenses
Money Jar: NEC ("Necessity")
Examples:
Category 6 - Learn! - Education related expenses
Money Jar: EDU ("Education")
Examples:
Category 7 - Play! - Enjoyment related expenses
Money Jar: PLAY ("Play")
Examples:
Category 8 - One-Offs! - Big ticket related expenses
Money Jar: LTSS ("Long Term Saving for Spending")
Examples:
Category 9 - Give! - Charity related expenses
Money Jar: GIVE ("Give")
Examples:
Category 10 - Invest! - Investment related expenses
Money Jar: FFA ("Financial Freedom Account")
Examples:
So, what does this all mean?
When you track your actual expenses by the 10 broad categories, it makes it a lot easier for you to keep track of the percentages that actually go into each of the 6 Money Jars.
You can then compare your actual percentages against the recommended percentages. If they differ by too much (let's say more than 10%), then it's time to reflect and adjust your spending to align with the recommended percentages.
If you are spending too much on necessities, then Simplify!
If your FFA account is too little, then start allocating more to put into it. In other words, Save and Invest more!
Category 1 - Roof! - House related expenses
Money Jar: NEC ("Necessity")
Examples:
- If own home - Loan / mortgage repayments
- If renting - Rental payments
- Utilities - Water, Electricity, Gas, Phone, Broadband / Internet etc
- TV licence
- Taxes - Council / quit rent / assessment
- Repairs and maintenance
- Home insurance
Home Sweet Home!
Category 2 - Ride! - Travel related expenses
Money Jar: NEC ("Necessity")
Examples:
- If own car - Loan repayments
- If don't drive - Public transport
- Fuel - Petrol / diesel
- Road tax
- Parking
- Toll charges
- Repairs and maintenance
- Car insurance
Baby you can drive my car!
Category 3 - Tummy! - Food related expenses
Money Jar: NEC ("Necessity")
Examples:
- Meals
- Groceries
Okay, John, stop playing with your food...
Category 4 - Fashion! - Clothing related expenses
Money Jar: NEC ("Necessity")
Examples:
- Clothing / shoes / accessories
Category 5 - Health! - Health related expenses
Money Jar: NEC ("Necessity")
Examples:
- Medical
- Dental
- Optical
- Toiletries
- Personal insurance
Do you choose to take the blue pill or the white pill?
Category 6 - Learn! - Education related expenses
Money Jar: EDU ("Education")
Examples:
- Tuition
- Study loan
- Classes / lessons
- Seminars
- Books / magazines / newspapers
Category 7 - Play! - Enjoyment related expenses
Money Jar: PLAY ("Play")
Examples:
- Party!
- Food and drinks
- Toy / games
Category 8 - One-Offs! - Big ticket related expenses
Money Jar: LTSS ("Long Term Saving for Spending")
Examples:
- Holidays - Flights, Hotels, Travel, Meals etc
- Celebrations - Birthdays / Weddings etc
- Festive occasions - Christmas etc
- New furniture
- New electricals
- New laptop
- New mobile phone
Alright, Santa! You can have ALL my money!
Category 9 - Give! - Charity related expenses
Money Jar: GIVE ("Give")
Examples:
- Donations
- Supported charities
Category 10 - Invest! - Investment related expenses
Money Jar: FFA ("Financial Freedom Account")
Examples:
- Shares
- Bonds
- Unit trusts
- Mutual funds
- Investment property - Loan / mortgage repayments, management fees, repairs and maintenance etc
- Savings
So, what does this all mean?
When you track your actual expenses by the 10 broad categories, it makes it a lot easier for you to keep track of the percentages that actually go into each of the 6 Money Jars.
You can then compare your actual percentages against the recommended percentages. If they differ by too much (let's say more than 10%), then it's time to reflect and adjust your spending to align with the recommended percentages.
If you are spending too much on necessities, then Simplify!
If your FFA account is too little, then start allocating more to put into it. In other words, Save and Invest more!
The 6 "Jars" That Could Change Your Life
T. Harv Eker in his book "Secrets Of The Millionaire Mind" introduced the most effective Money Management System.
It's called the Money Jar System or The 6 Jars. Basically, your net income (after all deductions e.g. income tax, social security etc) should be divided into 6 Jars at different recommended percentages or proportions.
Each of the 6 Jars would serve different functions. Ideally, you should create separate bank accounts to put the recommended proportion into each of these jars and also withdraw money from each bank account (or Jar) so that you can track the actual amount spent.
The 6 Jars are: -
Jar No. 1 - The Necessity Jar ("NEC")
This account is for managing your everyday expenses and bills. This would include things like your rent, mortgage, utilities, bills, taxes, food, clothes, etc. Basically it includes anything that you need to live, the necessities.
The recommended percentage for this Jar is 55% of your net income.
Jar No. 2 - The Education Jar ("EDU")
Money in this jar is meant to further your education and personal growth. An investment in yourself is a great way to use your money. You are your most valuable asset. Never forget this. Education money can be used to purchase books, CD’s, courses or anything else that has educational value.
The recommended percentage for this Jar is 10% of your net income.
Jar No. 3 - The Play Jar ("PLAY")
Money in this jar is spent every month on purchases you wouldn’t normally make. The purpose of this jar is to nurture yourself. You could purchase an expensive bottle of wine at dinner, get a massage or go on a weekend getaway. Play can be anything your heart desires. You and a spouse can each receive your own play money, and not even ask what the other person spends it on! Definitely my personal favourite Jar!
The recommended percentage for this Jar is 10% of your net income.
Jar No. 4 - The Long-Term Saving for Spending Jar ("LTSS")
Money in this jar is for bigger, nice-to-have purchases. Use the money for vacations, extravagances, a plasma TV, contingency fund, your children's education etc. A small monthly contribution can go a long way. You may have more than one LTSS jar. If you have more than one LTSS, divide the recommended percentage between the jars according to your priorities.
The recommended percentage for this Jar is 10% of your net income.
Jar No. 5 - The Give Jar ("GIVE")
Money in this jar is for giving away. Use the money for donations or give it to your favorite supported charity. The joy of giving brings meaning to your life and adds value to the lives of the people that you are helping.
The recommended percentage for this Jar is 5% of your net income.
Jar No. 6 - The Financial Freedom Account Jar ("FFA")
This is your golden goose. This jar is your ticket to financial freedom. The money that you put into this jar is used for investments and building your passive income streams. You never spend this money. The only time you would spend this money is once you become financially free. Even then you would only spend the returns on your investment. Never spend the principal.
The recommended percentage for this Jar is 10% of your net income.
It's called the Money Jar System or The 6 Jars. Basically, your net income (after all deductions e.g. income tax, social security etc) should be divided into 6 Jars at different recommended percentages or proportions.
Each of the 6 Jars would serve different functions. Ideally, you should create separate bank accounts to put the recommended proportion into each of these jars and also withdraw money from each bank account (or Jar) so that you can track the actual amount spent.
...and No! It's not this "Jar"!
The 6 Jars are: -
Jar No. 1 - The Necessity Jar ("NEC")
This account is for managing your everyday expenses and bills. This would include things like your rent, mortgage, utilities, bills, taxes, food, clothes, etc. Basically it includes anything that you need to live, the necessities.
The recommended percentage for this Jar is 55% of your net income.
Was that Bare Necessities or Bear Necessities?
Jar No. 2 - The Education Jar ("EDU")
Money in this jar is meant to further your education and personal growth. An investment in yourself is a great way to use your money. You are your most valuable asset. Never forget this. Education money can be used to purchase books, CD’s, courses or anything else that has educational value.
The recommended percentage for this Jar is 10% of your net income.
Jar No. 3 - The Play Jar ("PLAY")
Money in this jar is spent every month on purchases you wouldn’t normally make. The purpose of this jar is to nurture yourself. You could purchase an expensive bottle of wine at dinner, get a massage or go on a weekend getaway. Play can be anything your heart desires. You and a spouse can each receive your own play money, and not even ask what the other person spends it on! Definitely my personal favourite Jar!
The recommended percentage for this Jar is 10% of your net income.
Hmmm...I wonder what this "Grand Theft Auto" is all about?
Jar No. 4 - The Long-Term Saving for Spending Jar ("LTSS")
Money in this jar is for bigger, nice-to-have purchases. Use the money for vacations, extravagances, a plasma TV, contingency fund, your children's education etc. A small monthly contribution can go a long way. You may have more than one LTSS jar. If you have more than one LTSS, divide the recommended percentage between the jars according to your priorities.
The recommended percentage for this Jar is 10% of your net income.
Jar No. 5 - The Give Jar ("GIVE")
Money in this jar is for giving away. Use the money for donations or give it to your favorite supported charity. The joy of giving brings meaning to your life and adds value to the lives of the people that you are helping.
The recommended percentage for this Jar is 5% of your net income.
Jar No. 6 - The Financial Freedom Account Jar ("FFA")
This is your golden goose. This jar is your ticket to financial freedom. The money that you put into this jar is used for investments and building your passive income streams. You never spend this money. The only time you would spend this money is once you become financially free. Even then you would only spend the returns on your investment. Never spend the principal.
The recommended percentage for this Jar is 10% of your net income.
Ooo...that's some nice eggs you've got there!
3 Reasons Why You MUST Manage Your Money
"Are you tired of not having enough money or any savings at the end of each month?
Are you sick of having your monthly paycheck "disappearing" as soon as you get it?
Are you tired of spending beyond your means?
Are you sick of getting slapped by huge credit card bills which you can't afford to pay?"
Then, perhaps it's time to be your own "Accountant" and start managing your money!
Why is it so important for you to manage your money? Well, here's 3 reasons why: -
1. Create awareness
"If you don't know the root of the problem, how do you even begin to fix it?"
Managing your money creates awareness of your finances, helps you see where your money goes, how it is spent and identifies any spending issues that you may have. For example, if you are aware that you are spending too much on luxury goods or impulse shopping, which leads to HUGE credit card bills, then it's time to cut down expenses in that area.
2. Take control of your finances
"Now that you know what the problem is, it's time to fix it"
Once you know which areas you need to cut down your expenses on, then it's time to focus on that and start to change spending habits. Create a monthly budget and track your actual expenses against that budget. If your actual spending gets too close to your budget, that's where you have to "pinch" yourself and control yourself from overspending.
3. Your first step to financial freedom
"If you fix it well, it becomes a habit, and that's the first step to financial freedom"
Once your spending patterns have improved, then you will automatically develop a habit of saving or not overspending. You will learn to allocate your income to the right places (for example investments) and move them away from the wrong places (impulse buys or luxury goods). This also creates discipline in your spending which will contribute to your financial freedom.
Are you sick of having your monthly paycheck "disappearing" as soon as you get it?
Are you tired of spending beyond your means?
Are you sick of getting slapped by huge credit card bills which you can't afford to pay?"
Then, perhaps it's time to be your own "Accountant" and start managing your money!
Why is it so important for you to manage your money? Well, here's 3 reasons why: -
1. Create awareness
"If you don't know the root of the problem, how do you even begin to fix it?"
Managing your money creates awareness of your finances, helps you see where your money goes, how it is spent and identifies any spending issues that you may have. For example, if you are aware that you are spending too much on luxury goods or impulse shopping, which leads to HUGE credit card bills, then it's time to cut down expenses in that area.
2. Take control of your finances
"Now that you know what the problem is, it's time to fix it"
Once you know which areas you need to cut down your expenses on, then it's time to focus on that and start to change spending habits. Create a monthly budget and track your actual expenses against that budget. If your actual spending gets too close to your budget, that's where you have to "pinch" yourself and control yourself from overspending.
3. Your first step to financial freedom
"If you fix it well, it becomes a habit, and that's the first step to financial freedom"
Once your spending patterns have improved, then you will automatically develop a habit of saving or not overspending. You will learn to allocate your income to the right places (for example investments) and move them away from the wrong places (impulse buys or luxury goods). This also creates discipline in your spending which will contribute to your financial freedom.
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