Do you know how much money you have?

Check your balance

Now this might sound obvious, but how often have you avoided checking your bank balance before a night out. I’ve been known to (gasp) put my hand over the screen when my balance flashes up. Sometimes you really just don’t want to know. Especially not if you know you had a big night out at the weekend. And that’s fine, as long as it doesn’t become a habit. You should know to the nearest hundred how much money you have. You know what’s worse than your face falling when you realise you’ve spent too much? The sinking feeling when you try and take money out and you’ve spent it all a week before pay day.

Set up text message alerts

Most banks these days will text you at a certain limit on your account. Most banks will text you every day if you ask them. This is key to you knowing where your money is going. I forget a lot of things I buy, and I don’t think I’m alone. You go to the shop to buy biscuits, you buy three magazines and a packet of cigarettes and pop it all on your card. But you only remember the biscuits and have no idea where your money is going. Even a weekly text alert is better than guessing. Your brain will only ever guess in your favour. Your brain is almost always wrong.

Write down your online spending

Get a massive pen and piece of paper. Stick it above your desk. Every time you spend online, write this down and tot up at the end of the week. When we’re not actually handing over any cash, or physically paying for something, I think we forget that we’re spending money at all. By writing it down and having it staring you in the face, you’ll remember. And possibly think twice about that extra pair of shoes. You’ll also remember those little extras like delivery charges that we don’t factor into our spending.

Set up standing orders

Standing orders mean that you know where your money is going, as well as when it comes in. It’s not easy for me to deal with standing orders – as I’ve mentioned, I don’t always know when I’m getting paid. But if I can keep track of where my money is going, I won’t get a massive shock when I think I’m rich on minute and the landlady is calling me the next day to find out where the rent is. This has happened. It’s not fun. This way you control what day your cash is leaving your account.

Use cash

Want to really keep track of your money? Take cash out instead of using your cards. Once you know how much cash you’re taking out this week, you’ll be more aware of where it’s going. Banks and technology are doing their very best to make spending simple. But it’s a really issue if you’re trying to stick to a budget and I’m going back to cold hard cash for a while.

What are your tips for keeping up with your finances? Do you know how much money is in your account?

Creating Your First Budget

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Budgeting is one of the first great lessons of personal finance, yet relatively few people are taught the basics of creating one. Or if they’re taught, they forget. The inability to measure how much money is coming in and how much is going out is a primary reason for financial illiteracy in this country.

So it’s a good idea to go over those basics. The Webster’s definition for budget is simple: “A plan for the coordination of resources and expenditures.” A budget is both a noun and a verb—a plan and a process. So it makes sense to go over the basic process of budgeting—learning exactly what money is coming in to your life, what’s going out and how effectively you’re using the difference.

The Income Column: Measuring what’s coming in

For most people, this is the easy part. Income is largely made up of the following categories – wages, bonuses, investment income, alimony or other part-time income.

Budgeting is easiest if done on a monthly basis. It’s an easy time period with which to measure the inflow and outflow of money and it allows you to see over the course of a year which months tend to be better for income or spending.

How should you record these amounts?

Save all pay stubs and other proof of income. Photocopy checks before you deposit them and either build a physical file or start keeping track of income using computer software or online resources like Mint.com.

The Expense Column: Measuring what’s going out

Why are expenses tougher? Because tracking every cent you spend can be tough when you’ve never done it before. This process forces you to save receipts, credit card statements or to physically write down cash amounts in the absence of receipts. Recording and analyzing expenses are generally the most work-intensive part of budgeting, but there’s a silver lining – less spending means less recording time!

What are the primary expense categories? Food, shelter and clothing.

What’s beyond that? All of your monthly bills. Retirement investments. College savings for your kids. Insurance costs. And everyone’s favorite, taxes.

And beyond that? Entertainment expenses – movies, plays, vacations, sports, and of course one of the biggest money drains most people can’t stand to give up, cable TV.

How should you record these amounts? The same way you did in the income column.

The upshot

If your expenses match your income, congratulations. Relatively few people can say that, though the recent economic downturn has forced more people to cut debt and boost savings. But if your expenses are still outrunning your income, you now know you have to start trimming and finding more money for savings, investment or debt reduction.

What should your target be?

There are a variety of theories, but you will often hear the term “60 percent solution.” This means aiming for a total spending figure equal to the first 60 percent of your income.

How do you get there?

Start by identifying the expenses you can live without – designer coffee, restaurant meals and carryout might be a start. Then start finding ways to whittle down monthly bills – paying more than the minimums on credit card bills, consolidating other debt with lower-rate offers if you can find them. If you can refinance your mortgage affordably, that’s another good way to attack the spending side of your budget.

And what do you do with that extra money?

First, make sure you have an emergency fund that contains 3-6 months of money to cover living expenses. Then start putting money away for retirement. After that, money for the kids’ college fund. Beyond that, extras like vacations, entertainment and other treats.

If this approach seems a bit Spartan, it’s a good starting point – indeed, every individual defines the term “financial essentials” a bit differently. But it’s important to start prioritizing financial issues correctly. For help, it makes sense to consult a professional like a qualified financial planner and a tax expert to identify ways to save and tip more money into a solid financial future.

This article was submitted by the Financial Planning Association, the membership organization for the financial planning community. FPA members are dedicated to supporting the financial planning process in order to help people achieve their goals and dreams. Submission of this article does not imply an endorsement or recommendation of the Financial Resource Center site.