This article is the continuation of our Smart Budgeting Advice series aiming to help you manage your financial situation. We encourage you to read first article entitled “Smart budgeting advice Part 1: Divide and conquer”.
In ancient Rome, housekeeping was considered anything but an unpleasant chore. On the contrary, it was both an art and an honourable duty exclusively performed by women and highly esteemed by society at large. The mater familias would assign tasks to the servants, take care of their childrens’ education and, most importantly, deal with the fundamental task of budgeting. Both corresponding to and defying the typically clichéd labour division between men and women, ancient Rome has, over time, turned into a highly fruitful subject matter for gender studies, as more recent writings on the topic seem to suggest that the mater familias may actually have been the most important position within the household, with plenty of personal freedom to her credit.
Even to us at eccount money, the financial ideals expressed by Roman housekeeping still seem remarkably contemporary. The idea that earning, spending and budgeting are inseparably connected is especially intriguing and many households could, in fact, benefit from it today. What you need to make it work, however, are precise numbers to guide your decisions. Obtaining them isn’t all that hard – but it does require a bit of work.
Every time you buy something, cash from the household budget is traded in for a product or service. In itself, this is neither good nor bad, it merely changes the structure of your assets. Evaluating the quality of the transaction comes later, which is why it is essential to collect all receipts for analysis. You don’t have to develop a complex or ingenious system for this or invest into expensive financial literature. Simply place two cardboard boxes next to each other on your desk. One of them should contain “tax deductible” expenses and the other “non tax deductible” expenses. You might also want to consider using a small notebook for keeping track of expenses without a receipt – such as when buying fruit or vegetables at the local market.
Needless to say, collecting receipts is only the first and most fundamental step of the process. At the end of each month, you will have to make sense of the receipts to be able to draw conclusions from the data you’ve collected. You can do this most easily by beginning your own private form of bookkeeping. As with the first step, collecting receipts, no rocket science is required for this. Rather, you can adjust the basic concept of bookkeeping – comparing your incoming to your outgoings – to your own needs. And so, setting up an Excel sheet transparently divided into “earnings” and “expenses” will do just fine. If you’re looking for a more in-depth analysis, there are also plenty of bookkeeping software tools on the market, which will allow you to draw even more detailed conclusions. But, as mentioned, this is by no means a precondition.
After you’ve set up your own bookkeeping system, you can now put it into action. The data you’ve collected will allow you, first of all, to see whether your earnings are capable of covering your expenses. Needless to say, this should be your principal goal, as only a balanced budget will allow you to reduce possible debts, build up that all-important safety cushion for the future and, at a later stage, make investments which can increase your assets. Secondly, your bookkeeping will allow you to identify which parts of your budget are draining most of your money. We have already dealt with this aspect in the first part of our “smart budgeting advice” series, “Divide and conquer”, so check back on that article for further reference.
Looking at numbers and drawing up charts can be a pleasurable experience and can also yield some interesting insights. And yet, without you actually culling some important conclusions from them, there really isn’t much point in investing the time. Which means that after you’ve studied the statistics, you will need to set up an action plan detailing what, precisely, you intend to do about your financial problems. Make sure, in ancient Roman style, to do this both directly after you’ve drawn your conclusions from your monthly analysis and in sync with your daily routines, always trying to keep the household’s budget in equilibrium. Also, define a clear target for each action and include feedback mechanisms, i.e. by meeting up with the entire family to see whether certain goals have been met.
After you’ve covered these short-term points, the last step is to take a look at the bigger picture. Some expenses may seem tiny on a monthly basis, but can actually run up to impressive amounts over the course of an entire year. Which means that every three to four months, you should also check your entire bank statement for unnecessary expenses. In some cases, you’ll be surprised what you missed by merely looking at things from a short-term perspective. As with your regular bookkeeping, you should also make sure to always follow up your long-term analysis up with conclusions and action plans.
As mentioned, sticking to the five points mentioned above will require some work. But with your debts melting away, your account balance improving considerably and you finally being able to return to the black again, you’ll find the effort’s more than worth it.