- Image via Wikipedia
On of the biggest problems we had with controlling our finances was knowing where the money went. Have you ever said “Honey, do you realize we spent $900 eating out this month?” I have. The amount we spent on some categories was mind-blowing. Maybe some people don’t see $900 at restaurants, $400 on clothes, or $300 on books and movies as a problem, but I do and it was ridiculous! We’ve dialed back hard on the unnecessary spending and the first step was to understand our spending habits. That was a painful self-examination.
Here’s what we did:
- Have a Budget. This is quite simply the most basic step in organizing your finances. If you don’t have a budget, you don’t have a plan for where your money will go. Without a plan, your money goes on about its business without consulting you. Your money does not like you. It will do its level best to get as far away from you as fast as possible. A good budget is like shackles for your cash. Never underestimate the value of a good pair of shackles.
- Use a Spending Journal. Before we went cash-only, I was a no-cash spender. Every purchase was with my debit card and every receipt went into my wallet. That’s a disorganized, but effective spending journal. When it was time to balance the checkbook, I could look through my receipts and no exactly where the money went. It was nice to have a chance to wave good-bye and send it a postcard as it ran away from home. Other people use a small notebook or even–for the truly cutting-edge–the register that comes in a box of checks. Whatever system you choose, make sure you use it. If you don’t know where your money has gone in the past, how can you plan for the future?
- Use a Ledger. Most people call this the checkbook register. I use Quicken. About once per month, I sit down with any receipts we’ve generated and the list of transactions on the bank website and I balance the checkbook. I note everything we’ve spent, flag everything that has cleared the bank, and make sure all of the numbers match. This gives me a chance to review everything we’ve had incoming and outgoing and address any abnormalities while there is still a chance to get the bank to address problems.
[ad name=”inlineright”]
How do you track your spending?
Update: This post has been included in the Carnival of Personal Finance.
We use rewards credit cards for everything we possibly can* and about 2 times a month I check in and type in every single charge into the right category in our Excel sheet budget. At the end of the month, I make sure I got all those charges and I check our bank accounts for any deductions as well (anything that didn’t take credit). Anytime we withdraw cash, that simply gets put into a “Cash” category so I don’t have to keep up with the specific charges…we usually use less than $150 of cash a month. So far this has worked well for us for more than 5 years. 🙂
*Yes, we pay these off every month (never have incurred any charges whatsoever) and no, we don’t spend more than we would anyway (I’m cheap and hubby has learned to avoid my nagging…).