Tracking your finances

Why budget planning and budgeting matters

When visiting a restaurant, you can pay in cash. When checking out at your local grocery store, you can pay by pressing your debit card, phone or smartwatch to the terminal, and the money will be debited directly from your account. When you buy a phone or TV set by installments, monthly payments will be debited from your account. When you take out a subscription, the fees will also be debited from your account even though you might not actually use the service a lot. With so many different kinds of payments and payment methods, it can be hard to keep track. This is why many people only have a rough idea of how much they spend on various categories of expenses and how much they spend in total. A personal (or household) budget gives individuals and households an overview of their financial situation. By documenting your financial situation and making plans, you will have more control over your finances. You might even be able to find ways to spend less money and use the (additional) savings for other purposes. For example, you could take a vacation or renovate your home, or pursue longer-term goals, such as buying a home or saving for retirement.

Goals of budget planning/budgeting 

Budget planning/budgeting has two purposes: Documenting your finances and getting an overview, and planning and reviewing

Structure of a budget

You can set up a budget for yourself or for a household. The budget sets out your income and expenses in a structured manner. Once you have determined your income and expenses, it is easy to find out whether you have a budget deficit or a budget surplus.

• If your total expenses exceed your total income, you have a  budget deficit. 
• If your total income exceeds your total expenses, you have a budget surplus.

The following figure shows an example:

Income side 

The first step in budget planning is to make a list of all your income. This includes the income from your job, but also other sources of income.

In your plans, you should use net income, i.e. what you actually get after deductions and taxes, and you can actually spend. For planning purposes, it is also advisable that you only budget regular income and income streams that you are certain or highly likely to get in the future as well.

Expenses side  

On the expenses side, you will have more items, which is why it is helpful to categorize your expenses. Expenses should therefore be assigned to categories. It is important to distinguish between fixed and variable expenses. Fixed expenses are regular (e.g. monthly) payments of the same amount (e.g. rent). Variable expenses occur at irregular intervals and in varying amounts. Examples include costs for clothing and vacations. It is highly advisable that your budget take into account both types of expenses. Note that certain investments that increase your expenses in the short run can permanently reduce your expenses in the long run. For example, you can reduce your energy costs by upgrading your home (insulation) or by investing in a photovoltaic system.

Here is an example of how you can categorize your expenses:

Fixed expenses:

• Housing: Rental costs (including other housing-related charges), home loan payments and energy costs (electricity, gas, heating and water)
• Insurance: Home insurance, personal accident insurance and other insurance policies that involve regular payments
• Transportation: Public transportation season tickets (e.g. Klimaticket), car lease payments, car insurance, road safety inspections, highway usage fees and other regular car-related expenses 
• Childcare and school: Costs for regular childcare, school-related costs etc.
• Media and communication: License fee, Internet and cell phone plans etc.
• Membership fees and subscriptions: Streaming services, newspaper subscriptions, gym memberships etc.

Variable expenses

• Groceries: Food and drinks for the household
• Clothes
• Transportation: Public transportation tickets, gas and diesel, parking fees, etc.
• Childcare and school: Costs for additional childcare, fees for kindergarten and school, etc.
• Leisure: Restaurant visits, theater/cinema, outings, ...
• Vacations
• Other: Gifts, repairs, donations

You can determine your income by simply looking at your bank statement or your pay statements. With your expenses, it is a bit more difficult to measure how much you are spending. It is advisable that you document your expenses based on the amounts debited from your bank account. If you pay in cash, you should keep the receipts or record the transactions in your budget as soon as possible.

Tools for budgeting and setting up a budget 

A budget can take several different forms (i.e. be on paper or digital). There are many programs and apps that can assist you in this process. It is important that you find the right tool for yourself and use it consistently.

Paper budget planner 

If you prefer to keep a paper budget planner, you can either use existing templates (see below) or create one for yourself. You can also buy ready-made budget planners (books or booklets). In addition, you can order free budget booklets on the Klartext website (in German). 

Digital budget planner 

Alternatively, you can keep a digital budget planner. Programs like Microsoft Excel and Numbers can be very useful for doing this. They can be used to categorize and color-code your income and expenses, perform automatic calculations and create overview charts. In addition, you can download and use many templates that are available on the Internet. You can also print out these templates and fill them in by hand. See the following links:

Budgeting apps

Using budgeting apps, you can record your income and expenses across devices. Many apps also offer various additional features. For example, you can link your digital budget to your bank account. You could use one of the following apps: 

• M€INS
• Schotterlotte 

Banking apps

Most banking apps also come with a feature to create a budget. Using these apps, you can group your income and expenses into categories, and view charts and overviews.