January 5, 2009

Budgeting, Week One: Track Your Day-to-Day Spending

{Every Monday during the month of January, I'll go Back to Basics and discuss ways to build a realistic household budget. I'd love to hear what works for you! Add your ideas or links in the comment section at the end.}

Budgeting, Week One

Track Your Day-to-Day-Spending




Ouch.

That's not a very good image to see, is it?

Unfortunately, a lot of us feel the same emotional punch we get from looking at that picture above when it comes time to sit down each month and pay the bills.

Where,we wonder, did the money go?

While you may have a very good idea of how much money you spend on fixed expenses - things like rent or mortgage, insurance, loan payments, utilities - when it comes to everyday expenses, maybe the actual amount you spend gets a little foggier.

And this is why tracking your everyday spending for a week or longer is a good place to start when you're building a workable budget for your household.

You don't need to do anything fancy; grab an envelope and mark it RECEIPTS.
Then stick EVERY receipt for every purchase you make - small or big, cash or credit - for a week into that envelope.

This exercise is simple to do.

1. You don't have to build a fancy spreadsheet; all you need is an envelope.

2. If you're married, you and your spouse can each have an envelope to track your individual spending.

3. You don't need to change your spending habits yet; you just need to hold onto a weeks worth of receipts for every purchase you make.

But this exercise can also be hard to do.

If you and your spouse don't communicate about money or spending, this exercise won't work. You have to be willing to work together and have an honest and fair dialogue about your family's finances. If you can't, you may need to seek the help of a financial counselor.

Money and the spending of money are emotional lightening rods for many people. Maybe you like to treat yourself to a little shopping trip on the way home from a tough day at work. Maybe you go overboard in stockpiling what looks like a good deal or end up with a closet loaded with several years worth of Christmas gifts. Maybe you're dieting, but decided to splurge on a chocolate bar just this once.

Saving all those receipts might feel like you're gathering evidence about your own self-destructive habits.

But the first step to changing your spending and building a realistic budget it learning exactly where each and every one of your hard-earned dollar goes.

On Sunday, 01/11/09, I'll post a quick summary of this exercise along with tips on sorting those receipts and creating priorities for your spending.

How do you track your day-to-day spending? Do you use a simple envelope for receipts or do you prefer to use a spreadsheet program? Share in a comment what system works best for your family.

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