Right now during this pandemic, many of us are feeling overwhelmed, stuck, powerless, out of our depth. We’re dealing with unprecedented levels of uncertainty during this COVID-19 crisis, and it can make us feel like we don’t have control over anything — at work, in our relationships, in life in general.
But we can make moves to gain more control in different facets of our lives — including our financial lives.
And one way to gain control of our financial lives is through tracking expenses and budgeting.
Expenses
Why Track Expenses?
The single most important thing you can do to improve your financial health is track your income and expenses. When we track our expenses, we become more aware of where our money goes. Are you underearning or overspending? Some of both? You can see if you’re working toward your goals or against them. Armed with this knowledge, you can make course corrections and feel more in control of your finances.
Tracking and categorizing your expenses can be tedious and daunting, so we encourage you to approach it with the mindset that it’s just data. Clarifying your income and expenses will give you the information you need to evaluate trade-offs, make informed decisions, and feel confident. There’s no secret sauce, but it all adds up to better financial outcomes.
How to Track?
Check your online bank statements — most provide expense summaries or a tracking function. You can also use an expense tracking app like Mint, You Need A Budget, or Tiller or just use paper and pen. The more frequently you check, the easier it is.
Consider dividing your expenses into categories:
- Foundation Expenses: Expenses you can change eventually (e.g. rent/mortgage, utilities, groceries)
- Discretionary Expenses: Expenses you can reduce quickly (e.g. concerts, movies, sports, dining out, clothes)
- Intermittent Expenses: Expenses that don’t happen monthly; add these up and divide by 12 and set this amount aside each month in a separate account (e.g. car payments, home repairs, gifts, vacations)
- Subsidized Expenses: Expenses that are paid by an outside source (e.g. software, work-from-home supplies, courses)
Set goals for each category so that you can monitor your progress.
Also, establish an emergency fund. We all know how medical bills and car repairs tend to happen when you least expect it. Saving for those expenses before they happen is vital to building your financial security. Borrow from this fund instead of using a credit card. Build this fund to equal more than 3 months of your Foundation Expenses.
Budgeting
Why Budget?
Budgeting allows you to make conscious choices about what is important to you — and then translate what’s important to you into measurable goals. Through budgeting, you can know if you can have it all, and if you can’t, identify trade-offs to make an informed, intentional, and conscious choice. Overall, budgeting lets you be in control of your financial life.
How to Budget?
First, find what budgeting system works best for you — whether it’s pen and paper, online worksheets, Excel, or budgeting apps. Start even if you don’t have all the answers. Schedule a time to revisit your budget and make changes as you learn more. Set short-term goals so you can celebrate your success.
Lastly, know that “done is better than perfect.” It is okay if you don’t have all the answers right away. At first you will be making estimates, but as you become more aware of your spending, you will be able to make adjustments.
Financial Planning with The Humphreys Group
During this COVID-19 crisis, there are still ways we can find control in our lives — whether it’s going for a walk without any distractions or taking a new class. With these tips on how to find control within your personal finances, we hope we’ve helped you find some peace of mind during these challenging times. Reach out to our team if you’d like to further discuss taking control of your finances and creating a financial road map to success.
