Savings Challenge #2 – Track Your Expenses

Savings Challenge

Savings ChallengeIn order to create a realistic budget so that you can put money into savings, you first need to figure out what you are spending. The best way to plan for your future expenses is to track what your spending habits already are.

A better way to budget is to look at what you have done previously and make a plan based on actual expenditures. You are not going to go from spending $600 a month on food to $100 a month on food. Not even with coupons. Unless that will become your full time job and you plan on dumpster diving.

First, you will need to gather the data for this undertaking. You will need your bank and credit card statements, as well as your paychecks or other sources of income or expenditures. Gather these for the last 12 months. A year’s worth of information will give you a clear picture and help you see how your expenses change over the year. Your cable bill may not change, but your gift expenditures will.

Next, determine how you will organize the data. Pen and paper can work, but there is too much room for error and not a lot of room for analysis. I like to use some type of computer program to help in my budgeting efforts. There are a lot of programs that can help you budget and work with your personal finances. There tend to be three types of budgeting tools: Software, online, or basic spreadsheet.

Software programs, like Quickbooks or Quicken tend to be on the more expensive side of things, but have great tools for more advanced analysis. Online tools can be either free or paid, and usually have a mobile app for on the go finance management. They may not be as complex as Quickbooks, but are great products.

The downside I see to some of the “free” online tools that they now have your email address to send you “helpful” information on products and you are barraged with credit card and other offers. Not always best when you are seeing red every month.

Being a bit of a purist, I believe you need to walk before you can run. The upside to all of the prefabricated tools is that they usually securely link to your financial institutions and download and categorize most of your transactions for you. The downside is that you don’t see you went to Starbucks six times last week. This is why I think you should start with a home made budgeting tool to start. One where you look at each bank statement and see each transaction and categorize it yourself.

I have a great Basic Budget Template with a page for actual expenses and income for 2013 and a budget for 2014. There are tabs for checking, savings and a credit card. You can add or subtract as needed. The most important thing is to take the information from your bank statements and input it onto the different tabs of the spreadsheet and keep track of the balances of your accounts. This will just track your income and expenses, which is just a fraction of your financial picture, but is a good indication of what you are spending on a monthly and yearly basis.

Once you have a year’s worth of information, you can start making financial decisions. It is pointless to say you want to cut your expenses when you don’t actually know what they are. It is also important to know if you are outspending your income on a monthly basis. This might take several hours or a weekend. There might even be some curt words over the computer with your loved one while completing this, but believe me, it is worth it.

Once you get the information together and organized, it will become easier. Finances may only take a half hour a week instead of several hours once you get into the swing of things. But the most important thing is to start.

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Weekly Spending Worksheet:

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If you would like to get a copy of my Weekly Spending Worksheet to track your expenses weekly, you can have access to the Google Sheet file for $1.99

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Once you know what you are spending, you can actually create a budget. That will be our next savings challenge!

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