Sponsored content by Guillaume Decalf from www.ouifinancial.com – MerciSF is not responsible for the advice provided in this article.
The first question I always ask my clients is if they have a budget. Having a budget doesn’t mean that you have to monitor every expense or precisely stick within your budget categories. The primary goal of a budget is to become aware of how much money you spend per month or year on different categories.
What are some budget categories?
When you create a budget, you will need various categories. They need to be general enough so that you can quickly categorize transactions, but precise enough to be meaningful.
Here are examples of categories that I use with my clients: Salary, Rental Income, Mortgage, Car Loan, Property Tax, Tuition, Groceries, Home supplies, Transportation.
You should decide which categories make sense for you based on your spending.
How to track your transactions?
There are multiple ways to track your transactions: you can download your transactions in an Excel file from your bank and find an add-in to create a budget within Excel.
In my practice, I use the website mint.com. You can connect it directly to all your accounts (in the US) and then it will categorize your transactions for free. Personnalcapital.com is another free website, but it’s more investment-oriented. Regardless of the website or method you use, you will have to correct some transaction categorizations when you first get started, but then the website will remember your categories for the future. After just a few weeks, you will be able to observe trends and see the amounts you spend in each category, and you will have a general sense of your financial landscape. Then, use your monthly spending to calculate the size of your ideal emergency fund: your emergency fund should be around 6 months of expense.
How to create and follow goals?
Once you have linked your accounts and are tracking your expenses, you can create financial goals and make sure that you are on target to achieve them. Financial goals include retiring at a certain age, paying for college tuition, buying a house, etc. With mint.com, you can set a specific amount for your financial goals. For example, if you track your retirement readiness so that you can retire at a certain age, you could link this goal to your 401k, IRA and Roth IRA accounts.
If you discover that you are not on track with some of your goals, it may be time to think about saving more and reducing some of your expenses.
How to monitor and track your overall financial health?
Another advantage of having an overview of your accounts and your transactions is that you can monitor your financial health. A good financial tracking method or website should give you your net worth. Your net worth is equal to your total assets (property, liquidity etc) minus your liabilities (credit card debt, auto loan, mortgage, etc). Your net worth should increase over time. Checking your net worth regularly is a quick and easy way to gauge your financial health.
Merci Guillaume Decalf de www.ouifinancial.com
