Record Keeping Basics

 

Income —In this project, income is anything used to pay expenses and could include bonuses, investment gains, gifts or an inheritance. Record savings withdrawn to pay expenses as income and classify money put into your savings account as an expense.

 

Salary —It’s simpler to include as salary only your take home pay. That way you can skip expense categories for income taxes, social security, 401(k) contributions and the like. A self-employed person, however, would record gross income and all such expenses.

 

Accuracy—You want to be accurate, but don’t go overboard. Amounts need not add up to the penny and if you forget an outlay, it’s not the end of the world. Aim for 99 percent accuracy—for $2,500 in monthly expenses to match $2,500 in income plus or minus $25. Round monthly subtotals and totals to the nearest dollar, too. Getting rid of those extra digits will make the numbers easier to analyze later.

 

Continuity—This system is built on the cash method of accounting—income and expenses are recorded when they are received and paid, not when they come due. So if you defer one regular monthly expense into the next month, record it in the month it was actually paid. Likewise, if you pay off a charge card bill in installments, record only the amount paid each month, remembering to allocate charges to the proper expense categories, such as “night out” or “his clothes.”

 

Once you complete months of meticulous record keeping, you will know to within a few dollars how much you spent each month and on what. If you stick with it, keeping track of spending will become second nature.

 

More important, over time you will develop a realistic gut feeling about spending—a realization that when one category of expenses is higher than usual, economies are in order elsewhere. This sounds simplistic and it is. But if you have chronic money problems, a realistic gut feeling about spending may be precisely what you lack.

 

 

Your thoughts on this subject?  Your comments appreciated!

 

Content © Rich Brott, 2011

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