What are the things you spend your money on?

If you’re already in the habit of tracking your expenses, then I’m sure you could tell me exactly where your money goes.

However, if you’re someone who is not used to budgeting and creating a spending plan, your answer might be a random litany of your usual daily expenses.

Knowing exactly where your money goes is important if you want to improve your finances. But I know it’s not always easy to start doing so.

Oftentimes, when we finally decide to set aside time to budget our money, we get overwhelmed by the amount of things we need to consider and the task becomes less interesting and boring. After a few minutes, we start to think about other things and procrastinate for another day until the task gets buried and forgotten.

If you’re new to creating a spending plan, then perhaps you would like to try this simple budgeting technique that a friend of mine actually uses. It’s pretty much straightforward and effective if you commit to it.

The Time Line Of Your Spending
There are three basic places where your money usually goes: the past, the present and the future. This is what my friend calls “the spending time line”. It’s really an unusual way to categorize a budget plan, and I know it seems vague, so let me explain this concept further.

• A Budget For Your Past. The past refers to your loans and unpaid purchases. Quite simply, this refers to your debts. These can either be good debts or bad debts.
• A Budget For Your Present. The present refers to your daily expenses. It breaks down to necessities and luxuries.
• A Budget For Your Future. This refers to your future spending requirements. There are two sub categories for this: savings and investments.

So how do you create a spending plan using this budget technique?

Just assign a percentage for each category and commit your money to it. My friend follows the 20-70-10 rule, which means 20% of his income goes to debt payments, 70% goes to his daily expenses and 10% goes to savings and investments. Here’s a screenshot of a sample budget plan using this technique:

You should adjust the percentages and budget figures according to your requirements. You can also add more columns and details if you want, like the daily figure of how much is currently left of your monthly budget.

Of course this approach is too simplistic. But it’s really a great way to start taking control of your finances. I would say that it’s better than having none.

The lesson here actually is to jumpstart yourself into the habit of making a budget and moving forward from there. And eventually you would be more comfortable with using a more complex budget spreadsheet.

Lastly, my friend says that this simple spending plan teaches more than just budgeting. It makes you realize and understand a few more things:

• Learn from your past. Let your bad debts remind you of your financial mistakes. Take the lessons and apply it to your life.
• Live the present moment. By consciously monitoring your daily spending, you effectively take control of your finances.
• Plan for the future. The chances of you being alive tomorrow is far greater than you kicking the bucket today. So be prepared for it.

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Photo courtesy of Jeff Keen

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