Do you live off what you have every month or do you increase your debts every month? How do you sketch this reality? Start by carefully examining your expenses, income, debts, and savings. This stage is called “mirroring.” The purpose of the mirroring is to provide information about the financial conduct of your household.
Effective mirroring should be conducted according to the following steps:
1. Data collection (don’t stress! we’ll detail how).
2. Reflecting economic realities (income and expenses).
3. Details of the debt situation.
4. Details of the savings situation.
5. Summary of data
1. Data Collection
Below is the list of documents you need to collect so that you can check your real condition.
Gather all the necessary information and file it neatly according to the type of expenditure or income. Use a binder and sort each type of invoice (e.g. electricity, water, telephone) with a separate divider or chase.
So what does it take to get started?
|Required documents||How long back?|
|Bank statements||3-4 months|
|Statement for all credit cards||3-4 months|
|Arnona/settlement tax account||year|
|Mobile Phone Accounts||year|
|Salaried employees: salary slips||6 Recent paychecks|
|Self-employed: accountant’s report||
Assessment of the previous year and test balance from the beginning of the current year until the last month that has passed
2. Reflection of income and expenses
Once you have collected and filed the house documents, you need to do the mirroring. The process of reflection is not simple, both technically and emotionally. There are families in which exposure to the mirroring data provokes despair, frustration and mutual recriminations. We recommend making time and space, physical and emotional. Now you can take a breath and get started.
The examination will be carried out on the basis of annual data on income and expenses, excluding the monthly payments to repay the debts (if you have any), which we will deal with at a later stage.
Go through all the sections, section by section, in the “Expenses and Income Form“. In each section, the average monthly expenditure should be calculated:
a. Summarize expenses over several months (at least three months).
In. Divide the amount by the number of months we agreed.
|Average monthly expenditure||=||Amount of expenses|
|Number of months|
The amount received is recorded on the expenses and income form.
For about 3 months, a family spent NIS 1200 on clothing. Hence, the average monthly expenditure is about NIS 400.
- In any section that is documented in payment vouchers/credit statements/bank account transactions, the average monthly expenditure will be calculated on the basis of what is written in the documents and not on the basis of an estimate.
- The expense in bills due once every two months (gas, electricity, etc.) or once a year (test, car insurance, etc.) should be divided by the number of months for which the payment was made, and not by the number of vouchers.
- Ambiguous expenses: Every family has undocumented expenses (cash payments, etc.). These expenses are referred to as “ambiguous expenses.” For ambiguous expenses it is necessary to estimate their amount.
- Auxiliary calculators found in theIncome and Expenses Form can be used for the calculations in the various sections.
Calculation of revenue
In the income column in theExpenses and Income form , most of the options for sources of income are listed.
Go through the sections of the form and write down your average monthly income in each section.
- In the income section, make sure to write down the “net income” (see salary slip, this is the income received after the mandatory deductions) and not the “net payable” (the payment received by the bank after the authority’s deductions).
- The authority’s deductions that appear on the salary slip (loan, meals, etc.) must be added to the appropriate expenditure items on the form or to the list of obligations.
3. Details of the debt situation
Once you’ve done an analysis of your income and expenses, it’s time to map out your debts and write them down on a debt registration form. In detail, write down your regulated debts, these are debts in which you have reached an arrangement with the creditor and you pay for their repayment a lump sum or monthly repayment (for example: loans from banks, credit card payments). Also insert your unsettled debts that are not repaid or that are irregularly repaid (ex: grocery debt, bounced check, bank overdraft)
4. Details of savings
Concentrate on the “Savings Registration Reference Table” on the Income and Expenses form. The savings you have accumulated over the years.
For each type of savings listed in the table, write down:
- The amount that exists in savings.
- The amount of payment deposited in savings each month (this amount should also be recorded in the Standing Orders for Saving Expenses section of the income and expenses form).
- Due date.
If necessary, write down additional notes relating to savings in the table.
5. Summary of data
Now, summarize all the data you received in the summary table on the expenses and income form. Check:
a. What is the total amount of expenses and income.
In. What is the difference between expenses and income.
Gimel. Add debt repayments into this calculation, and check what the total gap is, taking into account all your liabilities.
If the gap is negative, meaning there are more expenses than income, you live unbalanced and increase your debts every month. Multiply this average monthly gap by 12 (months) and find out what annual gap will accumulate if there is no change in your financial conduct.
Have you successfully completed the mirroring phase? Give yourself a pat on the back. You have come to know your expenses and income thoroughly. This is one of the steps that requires the most time and patience. The result: you now have solid ground for building a good budget that will bring you to the desired financial balance.