Understand Your Expenses (Cash In-4)

Understand your expenses

 

As debt goes up, it becomes more and more difficult to get back to financial stability. Before one loan is paid up, there is a new one waiting. How do one escape from it? It’s very crucial here to understand how expenses behave in order to live a life free of debt.

After knowing how to add income, the next step is to analyse expenses. I shall divide personal expenses into two categories

  1. Essential Expenses
  2. Optional Expenses

Essential expenses are those expenses which you cannot avoid at any cost. These include – Expenses for food, clothing, housing, education etc.

Optional expenses are not a necessity. In Fact, it is incurred because one has money available in cash or other form and there is an impulse to spend it. For example – impulse shopping decisions like a purchase of branded high-cost items, going out for frequent parties and food at restaurants. They are not essential but they are incurred out of desires.

There is little one can do to manage essential expenses. And so, the future of your financial status depends upon your current level of optional expenses. I often hear people say, “I am earning well or I have a rise in income, but I have no idea where my money goes.” To all those who say so, have a close check at your personal expenses. You can even use some of them on your mobile. The free personal expense tracker downloaded from the internet.

Here are some tips on how to track personal expenses and use it constructively to achieve financial freedom.

  1. Decide on how you want to track personal expenses. It can be with your personal computer with the help of an excel sheet. Or you can download one of the free software available on the internet.
  2. Whichever tool you choose, don’t forget to divide your expenses into essential and optional expenses. It is one of the important steps in achieving financial freedom.
  3. Record all expenses at appropriate places as per the personal expense tracker. Record all cash and bank expenses, Verify your bank transactions with bank and credit card statements.
  4. Analyse your expenses. In a few months time, you will be able to take appropriate decisions as how to manage your expenses in order to manage your expenses and to save more.

 

Next time we will look at the various kinds of expenses, and how it affects your pocket.

 

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