I measure my expenses for more than 2 years. It certainly gave me more control over my personal finance, but I did not really acquire more wealth over time. I was stuck and I did not know the reason behind.
Thankfully, I realised that tracking your personal finance is only first part of the answer for reaching financial freedom (article here).
As I described earlier, second step to financial freedom is generating profit every month (article here). I realised that in order to be profitable every month, I need to gain extra layer of control over my finances. And that is when I learned about forecasting.
If you measure your finances for quite some time, you become aware how much money you spent on different things throughout the month. You start to see some patters, such as you spent something around 200€ on food each month or 300€ on rent etc. Because of this, you can actually forecast how much money you're going to spent in next month.
With enough data, you can forecast your future income and expenses in really detailed level.
Simply open empty google sheet doc., and list all your income and expense categories with forecasted values which are based on real data, which you measured!
Now the interesting part. What about those expenses, which does not repeat each month (e.g. one-off or annual payments)?
Let's say that you know that in May you have to pay 2000€ in form of Taxes. It is December now. With simple calculation you realise that you need to save 2000€ / 6 = ~334€ each month, to pay 2000€ on May.
So you list Taxes category as your monthly expense with forecasted monthly expense 334€ which you put aside each month. What you basically want to accomplish, is to get all your expenses (even those which are not regular one) on monthly level.
Click here to see the example of my forecasting table. I've changed the values there, so you are not looking at my real income and expenses :-). I've also recorded a short video, where I explain how my forecasting table is structured.
Forecasting my personal finance was THE step, which changed my personal finance the most. Remember, you can have shitload of data, but if you do not use them (which was my case for 2 years) they have no value.
Thanks for reading this article! You just invested your time into reading something which might help you in your life. Be proud. You are awesome!