Thursday, July 25, 2013

Step 1 - Tracking Spending

Step 1 - Tracking Spending

Where does one start? For beginners or those in trouble or those whose finances just need an overhaul, you have to start somewhere. You can’t do everything at once. You’ll be overwhelmed and do a half-bottomed job at it. So if you are swimming in debt and can’t get a handle on your finances, don’t fret. Just do like Bill Murray in the movie What about Bob? And take baby steps.

Step 1 – Track your spending

Track your spending for a month or two before attempting to make a budget. This will tell you where all your money is going each month. I bet you don’t know, I sure didn’t. Do this even before you attempt to make a budget. Having a month or two of detailed spending will make budgeting a lot easier on you. If you are to ADD or impatient to do it for this long try and do it for at least 2 weeks.

You may also be able to do this in reverse and go through the last few months checking and credit card statements. If not, start recording everywhere that your money goes. From your double-whipped-caramel-skinny-latte at Fourbucks to your mortgage payment, track it all. Make some basic categories and first list all the fixed expenses that you know you have each month: mortgage/rent, utilities, phone etc… Then add in everything else you spend money on that month, write it all down or use something like excel or an online tool like Mint. I personally prefer using an excel spreadsheet for expense tracking and budgeting. Christian Personal Finance has a list of good ones ( I use the one called “Personal Budgeting Spreadsheet”. It is in Excel format and you can customize it to fit your needs, and it’s free. 

You might think you know where your money is going, but I think this will be an eye-opening exercise for some.  You might find that you spent $150 last month on toys for your Mr. buttons, your cat or $300 on running shoes. I’ve done that before. Running shoes are a necessity, right?

After you have an idea of where the money is going, start thinking about ways to cut your spending so you can increase your savings rate and/or pay down debt.

Also think about just how frugal you want to be. Maybe you are doing alright and just want to cut the fat a bit so you can boost your retirement savings. Or maybe you are living paycheck to paycheck and drowning in debt.  There is no right answer to how much you have to slash from your spending. Some people, like my wife and me, are very frugal and refuse to go into debt for pretty much anything at all. We did finance our house but have since paid it off. We prefer a nice home cooked meal to swinging into the drive-thru at McDonald’s or Pizza Hut. Besides being very expense to get meals out for a large family, the food at most fast-food joints and chain restaurants is nutritional garbage. So let’s see $75-$150 for low-grade dog food at a place like Burger King or Applebee’s, or $20 bucks for a nice meal at home? Tough choice. And yes I can feed my family dinner for $20 and no that is not Ramen noodles and PB&J. We spend an average of $46 dollars per day on food, but that’s a subject of a future post.

 So as you read how we go about organizing our finances and what we spend our money on, just remember that this is how we have chosen to live. It’s certainly not the only way but it is the best way for us. We enjoy seeing how much we can save and we look forward to actually being able to retire and have some $$$ cause it’s not like we can count on Social Security.

Personally I’d much rather save my money than by junk-food and more crapola for the house.
How much can you save after slashing your budget to a more reasonable level? Well here is a teaser from a future article, we save 30% of my income each month. And no I don’t have a high paying job, just a regular old job. Above minimum wage obviously but not some high flying salary. And lower than most of my friends who have fewer kids and are struggling to make it financially. It’s about choices people. Sure we all have bad financial luck at times…car breaks downs, kid needs braces, hours get cut at work…stuff happens. That’s why you have to plan and be prepared. We live in a very high expense area so it can be tough at times to save a third of my income but it is worth it to us. My bride, who works much harder than I, sadly does not get paid monetarily.

After tracking your spending for a while you’ll be ready to make a budget and get your financial goals on track. Wait! You do have Financial Goals don’t you? If not, start thinking about them. This can be part of Step 1. Maybe you want to pay off your student loans or your credit cards. Maybe you want to expand your garden gnome collection or your vintage Barry Manilow 8-track tape collection. Maybe you are getting older and have neglected your retirement planning. Maybe you are retired and just need to fine-tune your finances so you don’t run out of money in your dotage and have to live off of Alpo.

If you find that your finances are completely hosed, you may want to try a "spending fast" for a certain period of time. Think Lent, but instead of meat-less Fridays, you don't spend any money on non-essentials. We are doing one for the month of July and are almost finished (another future post). I'll be the first to admit that it has been difficult. I thought it would be a breeze for us since we don't shop a lot. I was wrong. You can see my wife's blog for her thoughts on how it has been going. I sure do miss the UPS driver and the lovely Amazon packages he used to bring me regularly.

1 comment:

Sam said...

For those who are having a problem reigning in their may want to do the spending fast for a week instead of a month.