If you think you have a good handle on where you’re spending your money, you are the exception to the rule.
Most have a fundamental lack of insight into where each dollar made is spent. That lack of understanding is undoubtedly costing you. To get a handle on exactly where your money is going and begin to make more conscious decisions about future purchases, try this four-step process:
- Write down every single expenditure for a month. No exceptions. If you put a quarter in a parking meter or throw the eleven cents you get back when you buy your coffee into the Make a Wish box, write it down. Don’t try to rely on your memory—carry a notebook with you and write down exactly how much you’ve spent and on what immediately.
- Add up your expenses and break them down into categories. You’ll probably begin to note some surprising trends as you keep your log, but don’t rely on a general sense. At the end of the month, add it up and break it down. How much money do you spend each month on gas? On coffee? Meals out?
- Assess the wisdom of those totals. There’s nothing inherently wrong with any particular category of expenditures. If you’ve consciously chosen to spend a significant portion of your income eating out, for example, that’s your business. The goal here is to make sure that you’re spending your money on things you value, not letting it slip through your fingers. Determine which categories you’re happy with and which you’d like to cut back.
- Create a budget. Once you have a clear sense of how much you’re spending in each category and how much you’d like to be spending, commit to that in writing (or budget planning software). Having a monthly budget will not only help you impose limits on your spending. It will help you maintain consciousness of your spending choices as you move through the month.
The average American spends $87/day on “discretionary expenses,” though most estimate that they spend much less.
If you’re like most Americans, you’re likely to encounter some surprises when you get to step two. Surprises that will help you make more conscious choices about your money.
If it turns out that you’re spending just about what you expected in each category, you’re already ahead of the game. Just make sure you use that information to keep your money focused where it matters most to you.
