Keep financial records, know your money and get better at keeping it

Idea

I know many who have been trying to get a hold of their expense account and save money but they have no clue where to start. Others are paying huge amount of money to have their financial records maintained. I say keep your records yourself and save money. It can be as easy as it sounds. You can find below all the basic things you need to know, in order to keep financial records and save money.

Terminology you should be familiar with:

1. Expense: In simplest terms, everything you spend is an expense. This can range from paying for a coffee to buying a car. The lesser your expense, the more chance you have to save money.
2. Income or revenue: This includes everything that you may earn. Again, this can range from the money you get from selling a pen to the money you get as your annual job income.
3. Investment: Investment is anything that you spend to earn a revenue or income, e.g. investing money in a business, buying stocks or depositing money in a savings account. A successful investment yields higher revenue than the value of the investment.
4. Profit and loss: Profit is the positive difference between your income and your investment while loss is its opposite. If you are earning more money than you are investing, you are making a profit otherwise you are facing a loss.
5. Budget: Budget represents the money that you allocate against a certain task. Budgets are always made before the actual expense. Making a budget can be the key to save money

Why keep financial records?
I am a salaried individual and had zero savings when I started to record my financials. In the beginning, it was complex and time consuming but with time I started realizing different trends in my expense account. I started categorizing each expense and my financial savings began to slowly grow. All due to keeping financial records.
Keeping financial records gives us visibility to our expenses and earnings; consequently showing us our weak areas or expense categories where we can avoid spending money and consequently boost our savings. Controlling each expense is never easy but keeping records definitely helps a lot.

The simplest way of keeping financial records:
Make a table listing all the money you spend or earn. Yes it is that simple. Mention each financial earning in your table as positive value while write each financial expense as a negative value. For example, buying a bottle of water -3, getting tip from a customer +2. In addition, write the date of the expense and the detail in two other columns and mention a category against each financial record, e.g. buying soap “household”, cab to work ”work” etc. Microsoft Excel offers all the necessary tools to maintain a worksheet and keep financial records. Have a look at the attached snapshot for detail. You can also do it online using various websites.

Now, if you want to know how much money you spent on a certain date, you can just sum all the entries on that particular date. If you want to find out your expenses against a particular category, you can just sum all the entries against that category.

Managing your expenses:
Once you have taken the first step of recording each financial expense, you can move on to managing your expenses. Managing expenses starts with three basic rules:

1. Determine your total budget, i.e. how much money you want to spend in a month.
2. Divide the budget into categories. Those are the same categories you established to categorize your expenses. For example, you can assign $400 to “rent & utilities”, $30 to “entertainment & fun” etc.
3. Prioritize the categories and then try to cut financial costs for categories with lowest priority. Note that priorities are based on individual preferences. A family would normally assign a higher priority to “rent & utilities” while a student might want to spend large part of his/her financial allowance on “entertainment & fun”.

Applying these rules, I have gone up from saving nothing to saving about 30% of my salary each month.

Small ideas for investments that will earn you small financial profits:
This is a very important part. If carefully understood, this can redefine your whole strategy to save money. There are investment opportunities all around us. Identifying the correct opportunity and investing in it, can be the key to making some extra money.

Employee Provident Fund (EPF), offered in various countries, requires an employee to contribute a part of his or her salary, usually 5 to 10%, to the employee's provident fund. The employer is then required to match the employee's financial contribution. In effect, the scheme provides 100% profit to the employee, but not all employees are familiar with the policy. Until recently, many of my friends had opted out of the program in their companies while others had opted for the least amount of money to be deducted from their salaries and deposited to a provident fund. That was until I explained to them how useful a provident fund scheme is.

Bank savings account and credit cards are two other examples of simple investments we can make. Most of the savings accounts offer profits on average monthly account balance. So I make sure, I do not make a big withdrawal until I need it. Credit card schemes are very useful if you pay the bill in time. So I try to use credit card for each of my expense (avail all discounts in this regard). On top of that, I get points that I can redeem later for more discounts. Furthermore, I pay the bill in time. By using the credit card, I mght pay for what I bought today, one month later. For that one month, the money stays in my savings account and earns me further profit. There may be several more investment schemes around you, where you need to learn to identify the risk and then invest in suitable ways to earn maximum profit.

Saving money is easier than we think. We need to make a conscious effort and be persistent with it.