Today we introduce the first in a three-part series about getting your
finances organized. The NeatReceipts staff has compiled this tutorial as a way
to help you control and organize your spending to make next year’s tax-time
hassle free.
PART 1
Money Spending Plan
Everyone wants to control their spending. We all realize that until we know,
in detail, exactly how much is coming in and how much is going out, we don’t
have control. When we don’t control our money, our money controls us; not a good
feeling.
The value of a plan
Because a firm understanding of our income and expenses is the first step in
formulating a personal financial plan, it’s best to have as much detailed
information as possible.
A Money Spending Plan is an organized approach to the flow of our money. It’s
easy to determine the amount of money coming in; our paychecks.
The big payoff of our plan is tracking down our outgoing money.
Once you have established where your money is going (and why), you have a
handle on the relative importance of each purchase. The new car you have been
wanting to purchase is now seen in the relative terms of dining out 20 times a
month. It’s all about choices, but you have to know all the facts first.
How much am I spending?
OK, then. How much am I spending? When we sit down and try to add up the
costs of all our purchases, we always miss a large proportion of the cash flow.
Herein lies the dilemma. Missing purchases. NeatReceipts can help.
The large purchases
We plan for the large purchases in our lives. The car, boat, home, vacation,
college tuition. These items are big enough that we cannot buy them on impulse.
And we don’t forget the cost or the date of these items for a long time
either.
What are the Five largest purchases in the last year that you made? And
Why?
That was easy. The items come right to mind and you are thinking, “. . . and
I’d do it again!” These were well planned purchases that were timed to minimize
the impact on your total spending. You probably thought about the pros and cons
of the purchase, talked to friends and neighbors, and perhaps the banker.
The many small purchases
But we don’t take the time to scrutinize every little purchase we make.
NeatReceipts offers a solution for effortlessly tracking these smaller
purchases.
What are the last fifty small purchases you made in the past year? And
Why?
Can only remember a few? Since there are so many and insignificant at the
time, we tend to overlook the impact they have on our budget and our lives. If
only we knew what these little items were, we might be able to modify our
spending.
Is There a Solution?
We need a simple and effective method to capture the day-to-day spending of
the small items we are constantly buying. We think that there are no
consequences for these purchases, but there is power in numbers, and the numbers
don’t lie.
Electronic Checking method
Many of our expenditures are paid for with checks. The bank sends us a
statement once a month and we get to see an overall picture of our spending. But
checks don’t give us the complete picture. Credit card statements give us more
information, but we know that there is still missing data.
It is estimated that more than half our spending is done in small increments.
This spending is not traceable. Methods have been devised that promise to track
and report these small items, but they are clumsy, time-consuming, and difficult
to maintain, even with modern software support.
Cash Method
One solution for capturing these incidental items is to allocate a set amount
of cash each week or two. If the cash runs out before the allotted time, then we
have spent more money than we thought we needed.
Envelope Method
To get a more detailed picture of this spending, we can put set amounts of
cash into envelopes marked for categories of spending, like groceries, dining,
gasoline, entertainment, etc. As these envelopes empty, we get a clearer picture
of which categories are under-funded. This is a time-consuming method for
capturing spending habits and few people stay with the system for more than a
few months.
Most people don’t like having large sums of cash lying around,
not making interest. It’s not safe and it’s inefficient.
Software Tracking Method
There is very good expense tracking software on the market. These programs
can tell you much about your spending habits. But these programs must first have
all the information about your spending. As we have already seen, much of this
data is missing because we have no way of easily capturing it.
The NeatReceipts Method
NeatReceipts captures and creates a detailed report of these items. Imagine,
sitting down and looking over your personal spending report for the last week or
month. All your food, car, house, and entertainment expenditures. NeatReceipts
even designs different reports to support your varying lifestyles. For example,
personal, business, entertainment, or charity.
All the insignificant charges from the newspaper to the cup of coffee will
now be under your control. Visualize knowing where every single penny went last
month! Just knowing is a giant part of being financially organized.
Next week: How does NeatReceipts accomplish all this with no
effort on your part?
