The key to building a strong financial plan for the future is to understand how much money you’re currently spending and saving.  Budgeting and tracking your expenses can give you the knowledge and control you need to get through the various financial changes in your life.

We started budgeting and tracking our spending a few years ago to help figure out if we could afford to live on one income after our oldest daughter was born.

Related: How To Make A Better Personal Budget

We cut out a lot of excess spending from our budget just by taking a close look at our expenses for three or four months.  Little things like coffee, magazines, snacks and the odd take-out meal can really add up when you don’t pay attention.

Budgeting Made Easy

I use a spreadsheet to track what money is coming in (salary, interest, government benefits) and what’s going out (mortgage, debt payments, utilities).

My personal budgeting spreadsheet has 75 spending categories, which I’ve customized for our own situation.  Here’s a look at our home expenses:

Home Expenses Monthly ($) Annual ($)
Mortgage/Rent 2,025 24,300
Electricity/Gas 175 2,100
Water/Sewer/Trash 75 900
Phone 65 780
Cable/Satellite 80 960
Internet 35 420
Total 2,455 29,460

Fill in all your monthly expenses in one column and your annual expenses in another column.  Add up your expenses in both columns and subtract them from total net income on both a monthly and yearly basis.  The result is your cash flow surplus or deficit.

Some people think budgeting and tracking your cash flow is a waste of time; that once you pay yourself first it doesn’t matter how you spend the rest of your money.  I think that’s a mistake, especially if you’ve never tried it and seen the results for yourself.

David Chilton agrees when he wrote in The Wealthy Barber Returns that not tracking our spending is leading to over-consumption and we’re now carrying debt along side of our savings.

To get any meaningful results from the budgeting process you’ll need to track your cash flow for at least a year.  Once we had 12 months of data to look back on, we were able to put together a solid plan for the future by forecasting our income and expenses 12 months in advance.

It takes time to uncover spending patterns and to understand the complete picture of your income and expenses over the course of a year.

Even though I have a good handle on our cash flow, I recognize that there’s always a new financial challenge on the horizon that may require changes to our budget.

Budgeting can help you prepare for major events like buying a home, having a baby or making a career change.

Do you think budgeting is beneficial, or is it a waste of time?


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