Between direct deposit and online banking, it can feel like your checking account is made of keystrokes instead of dollars. The cash goes in, and with the swipe of a card, the cash goes out. It's easy to lose track of how much was spent and where, but managing your cash flow doesn't have to be difficult. Here are three simple strategies for taking control.
You've probably heard this before, but it's the first step to managing your cash flow. If you don't know what's happening to your money, you won't be able to redirect it. Write down every expense, even if it's just the spare change you threw at the convenience store to get your soda fix. Save your receipts and calculate expenses in whatever way feels comfortable. For your tracking phase, you don't need anything fancy. A simple spreadsheet or paper ledger will do.
If you buy everything with plastic, you're a step ahead. Print your credit card or bank statements from the past few months and then categorize your expenses (groceries, gas/transportation, eating out, etc.). Some financial institutions automatically categorize your transactions for you.
If you tend to purchase things with cash (or a mix of cash and card), you'll need to track your expenses by hand. This can get tedious, but push through and take the time to do so. You'll never see where your money is going if you don't track it! Do this for at least one month. During your tracking phase, buy things as you normally would to get an accurate snapshot of your spending habits.
Pay Yourself First
Before you pull out your wallet to buy that new hardcover, transfer money into your savings account. After that, set aside whatever you're going to owe for bills this month—that's money you can't touch.
Many financial institutions let you open multiple savings accounts under your primary account for free. Having multiple accounts makes it easier to see how much money you have set aside for various goals, and how much disposable income you have at any given time. This is great for mid- to long-term savings goals like a new computer or car, but it can also be used to manage your cash flow. If you have a hard time tracking how much you have available after expenses, set up a secondary savings account and use it for your bills. Transfer money into it after you get your paycheck, then transfer it back to your checking as you pay bills. It may also be possible to pay your bills directly out of this account.
Removing money from your checking account gives you a more honest picture about how much money you really have. Once you've paid yourself for your various savings goals and set aside money for bills, purchase that hardcover with gusto.
Find a System that Works for You
From your basic spreadsheet or envelope system to elaborate apps that track your entire financial portfolio, there is a budgeting system to meet every need. The important thing is to find a system that works for you and stick with it. Giving every dollar a label before it leaves your bank account allows you to take control rather than letting your money control you.
It may take trial and error, but having a clear picture of your finances gives you a sense of freedom. You'll know whether you can afford to treat yourself to sushi, or whether you need to wait until next month. If you're a heavy spender it may take some time to adjust, but the peace of mind that comes with being in charge of your money is priceless.