Good cash flow management and a thorough understanding of your finances can make all the difference when you plan to purchase a home. But when it comes to cash flow management and financial smarts, everybody’s got an opinion. Some people religiously save 10% of their earnings. Others pay themselves first.
Before you make any decisions on how to save or spend, it is essential to track your finances for at least six months. Tracking your finances will give you a comprehensive look at where your money is going, and will allow you to save more effectively.
Track your finances: go digital
Budget tracking in this day and age can be a much simpler process than ever before. Digital personal finance applications such as Mint or You Need A Budget can automate tracking for you. Authorizing these services to sync with your bank, credit card, and loan information will import that information and categorize your spending into a customizable budget.
There are also personal finance applications such as Quicken or Microsoft Money that do some of the work for you, without requiring access to your banking information. They require you to enter individual transactions, but help you easily categorize your spending and understand how where your money is going and how to divide up your budget.
Track your finances: offline
Another alternative is to track your expenses and income in a spreadsheet yourself, by simply writing down your expenses and doing your own calculations. Any method that requires you to manually track each expense will also get you into the important habit of reviewing your bank transactions.
This may be a good option if you want the freedom of setting up a personalized budget that works for you, rather than the system provided by existing software.
Tips to help you succeed
Whether you choose to do it on a spreadsheet or by hand, here are some important things to keep in mind:
- Be accurate — Be sure to report every transaction. Small purchases add up quickly!
- Be thorough — Accurately classify your transactions—report what you spent the money on, not just where you spent it.
- Be flexible — Some times of year, such as the start of a new school year or the holiday season, are harder on your budget than others. Plan ahead so your budget can change month-to-month.
- Be consistent — Tracking your monthly spending once a month can be a daunting task. Taking just a few minutes at the end of the day will make your record more accurate, and make the task more manageable.
Once you’ve gained a broader understanding of your finances, it’s time to set and achieve goals.
After tracking for six months, look at the information you’ve gathered to help you understand what is achievable, and what you need to do to meet your goals, whether it’s cutting spending or increasing revenue. Looking into where your money is going will make it easier to both save and spend strategically.
The good news is you don’t have to do all this hard work alone. At Safebridge, we believe in planning for the future through Mortgage Centred Financial Planning. Rather than looking simply for the best mortgage rate, we look at the big picture of your financial situation to help you achieve more. Learn more about mortgage-centered financial planning by contacting us today.