Collaborative Post¦ Whether we like it or not, we’ve all got a relationship with money and very often it doesn’t run quite as smoothly as it should. A good relationship involves knowing where you stand so you can make informed decisions. And knowing where you stand with money involves a bit of simple bookkeeping.
Keep things simple!
If the very thought of accounting or bookkeeping makes your eyes glaze over, the good news is that it doesn’t have to be complicated or boring. Simple bookkeeping involves nothing more than keeping track of your income and expenses. You can do this with just a notebook and pen or get a bit fancier if you know Excel and like working on the computer.
Let’s suppose you are using a notebook and pen and look at how to set up your first month’s bookkeeping records. You need the same information if you’re working on Excel, so just follow the steps below:
Make five columns, then starting from the left give them the headers date, item, cost, income, balance.
- The date is obvious; when did the transaction happen.
- Item is what you bought (or sold if your records are for business). It can include categories of items such as groceries, or list where money came from such as wages or salary.
- Cost is the price you paid for something.
- Income is how much you have coming in and can include business sales, wages, investments, or any other money that flows into your bank account.
- Balance is your running total after you add or subtract whatever you put in the cost or income columns. The only other thing to remember for this column is to include direct debits and standing orders that happen automatically behind the scenes. Start this column off by grabbing your latest bank statement (or consulting your online app) and jotting down how much money you currently have available.
That’s all. For a simple bookkeeping system to manage household accounts or a very small and simple business, you don’t need much else. If your household or business affairs are more complicated, you’d probably find it cost effective to get professional accounting services. But using this system, at the end of the month, create a similar layout on a fresh page for the new month. Head your balance column with the figure showing at the bottom of that column for the previous month.
Organise your Receipts
Keeping reasonably accurate records involves saving your receipts so you can transfer the amounts into your bookkeeping system when you get home. If a shop doesn’t offer a receipt, try to get into the habit of asking for one. The reason we often wonder where our money goes is because small purchases add up and are easily forgotten. By getting a receipt for everything and spending time at the end of the day transferring all those small amounts into your notebook you can easily see exactly where money is going.
Unless you need to keep receipts for business records to help with your self assessment tax return, or to prove your household purchase, you don’t have to hang onto them once you’ve transferred their details.
Understand your Records
Keeping all these records isn’t an empty exercise. They contain valuable information that can help you spend less and save more once you understand how to analyse them.
When you’ve been keeping records like this for just a few weeks you’ll be able to glance back and see exactly where your money is going. How much do you spend on takeaway meals or random treats for the kids each week? How much are you spending on groceries or fuel for the car? There are lots of different categories of spending you could dig into.
Because you list each item and how much it cost you can see how often you make that same expenditure over any period, and the amounts of money involved can be surprising.
Using this simple bookkeeping method, it’s much easier to spot where you could cut back on expenses to free up funds for other things. But as well as saving money on spur of the moment treats, it can also help you plan for upcoming larger household expenses and set aside a little for unexpected emergencies.
You’ll quickly see a pattern to your spending and income and feel much more in control of your finances. It makes the odd splurge completely guilt free because you’re controlling your money, not the other way round.
Disclosure: This is a collaborative post.