Monthly vs. Daily Budget

It is important to know where your money is going

Whether you make a very high income or just scrape by, it is essential to have a realistic budget in place. A solid personal or family budget is the foundation of all financial planning, and without a good budget plan in place it will be all but impossible to find the money that leaks out of your wallet unseen. There are many approaches to developing such a spending plan, including plans that force you to budget on a daily basis and plans that rely instead on a monthly tally. Each approach has its advantages, and many people find that a combination of both approaches provides the best chance of success.

The Notepad Approach

One of the most effective ways to find out where your money is going is to carry a small notepad and pen with you everywhere you go. Every time you spend any money, no matter how little, take the time to write that expenditure in your notebook. At the end of the day add up all of your daily expenses and record them on a spreadsheet. Tracking your daily expenses in this way can be quite revealing. You may suddenly discover that those $4 daily lattes really add up, or that eating lunch at the local restaurant each day is costing you hundreds of dollars a month.

The Envelope Approach

Carrying a small envelope to hold receipts is another valuable budgeting tool. This exercise helps to instill fiscal discipline by ensuring that every expense is duly recorded. This approach also helps you avoid overdraft fees and other bank charges by ensuring that every transaction is recorded in your checkbook at the end of the day. Record the amounts from your daily receipts in your spreadsheet and your checkbook at the end of each day.

Comparing Month to Month

Monthly budgeting is an important tool, but comparing your expenses from month to month can be even more enlightening. Take some time to go through your checkbook and add up all of your expenses for the previous month. Then compare those outlays to your spending for the past six months to a year. Seeing your spending patterns in black and white can really help you get a handle on your expenses.

Finding the Fat

One of the chief advantages of a daily and monthly budget is that it forces you to take a hard look at your finances and look for ways to cut back. From skipping that daily latte to brown-bagging your lunch, there are many ways to save. By checking your daily and monthly expenses you will be able to find these wasteful spending items and cut them out of your budget.

Tracking Your Progress

It is not enough to simply create a daily and monthly budget. In order to effectively reduce your spending and boost your savings you need to track your progress over time. If you have a successful budget plan in place you should see your spending go down as you identify and eliminate unneeded items. Tracking your progress over time will help you make the most of every penny you make.

References

• Money Magazine: Creating a Budget