By tracking your income and expenses you will know
where your money goes and be better prepared to set
up a realistic budget for future spending. Knowing
how much you have to spend and spending no more
than is allotted in each spending category puts you in
control of your finances.
• Keep household and business records separate
Most small business owners (including self-employed
farmers, ranchers, and entrepreneurs) are required to
report the status of their business and business
expenses prior to being approved for a loan and for
income tax purposes. It is much easier to do if you
keep separate books for household and business.
There are additional benefits to keeping separate
books. When net farm income is down, knowing
where to adjust household spending will help offset
a drop in income. Financial stress encountered by
farm households will be more likely due to debt serv-
ice difficulties with non-farm debts than with farm-
related borrowings (McElroy et al, 2002).
• Selection of a tracking method
There are a number of different methods—some
detailed and time consuming and some simple and
quick—to use to track current income and expenses.
Each has its advantages and disadvantages. The
following information can help you decide which
method or combination of methods will work best for
you.
• Envelope (cash) method
One of the easiest ways to track money is by working
with cash only. If you learn best by handling or
touching things, this might be a good method for you.
Collect some envelopes and write a spending catego-
ry on the outside of each. For household expendi-
tures these might be rent or mortgage, utilities (unless
included in the rent), food, clothing, transportation,
personal care, children’s activities, entertainment, and
debts. For business expenses you might have rent,
repairs, fuel, feed purchases, etc. Then write the
amount of money you anticipate you will spend for
the next month or quarter for each category. Note
that the total amount listed on all envelopes cannot
exceed total