Personal Finance: Where Do I Begin?

Personal Finance can be daunting, it’s often associated with keeping every receipt, logging every purchase and punching numbers until your fingers are raw. I remember my eyes longing for a distraction every time my friend would start talking about it. I figured since I was not making a large salary, I could simplify by doing the counting and predictions in my head. Why complicate things, right?

Not too long after, I was hired for a new job. I needed to borrow some money in order to pay for the move, rent (deposits and agency fees) and for living expenses that would accumulate before I got my new salary. I asked the same friend if he could help me, and he agreed on the conditions that I set up an Excel table and plan all my expenses. I didn’t need to show him my finances, he just wanted to help me get started. I agreed and after putting together a simple Excel table, realized that I could move even without borrowing and increasing my debt!

Quick and Easy

I live in Europe and tools like Quicken don’t work with banks here (perhaps a legal limitation) so I have to track my expenses manually. A strong desire for simplification made me rethink the idea of keeping my receipts and tracking every cent spent, so that I now  spend about ten minutes a week to keep tabs on my spending, that includes:  general spending, insurance, savings and debt repayment.

Categorization of Spending

The idea is to have an Excel table where you will define the categories of where your money is coming from and where it is going, as is shown below:

Define a few more categories in the bottom for additional calculations:

It is also a good practice to highlight categories with different colors. As you can see I am using green for all income and savings, yellow for expenses and blue for general calculations and information.

Timeline

Our next step will be defining the timeline.  As I am paid on a monthly basis, I track spending month to month. You can use weeks or what seems logical for you. Add the timeline to the right from the “Expenses” column as is shown below:

A timeline is one of the most important elements of Personal Finance. With the help of a timeline you will be able to track your past performance and see what to aim for in the future.

Calculations

Calculations are quite basic and you should be able to perform them in any table processor. The category “Have” tells you how much money you currently can work with. I started it with zero.

“Main Income” is for your reoccurring salary after taxes. For this example I’ll put 1000.

“Other Income” is for occasional bonuses and extra earning. Just remember not to put any numbers in here before you actually get paid.

“Total Income” should be a sum of “Main Income” and “Other Income.” Use the formula to add them up automatically. Here is what it all should look like after you put all the numbers in:

Now you need to enter your categorized spending. Expenses that are steady and reoccurring like: rent, membership fees and bank payments worth putting into the chart in advance. This is what it should look like:

After accomplishing this you can already see what your allowance for things like traveling, food and going out will be.

Add two more lines that will sum up all of your expenses for each month, and show you what you’ve got left respectively.

Savings

I consider savings as a necessary expense in my table so that there is less temptation to use it. Add a line, perhaps highlighted with different color, for the amount of money you are setting aside each month. I do it separately for each savings account I have.

Tracking

Once you’re set and have everything filed, it is time to start tracking your expenses. To ease into it, I would advise using your debit card and then go through the transactions periodically using an internet banking application or a bank statement. Categorize every transaction and fill it into the table in the appropriate line, and after about three to five months you’ll see how much you generally spend for going out and food, so that you’ll be able to forecast your financial situation without having to go through bank statements all the time. Just don’t forget to perform a periodical review to do the adjustments!

In Conclusion

Using such an Excel table to track my finances allowed me to travel across Europe and the US while still saving and repaying my debt. A few times I got carried away, and tried to calculate in too many factors and over-define my expenses: don’t forget that the idea of Personal Finance is to make your life easier and not add more burden, keep it simple and workable for you.