Have you ever wondered where all your money goes? In order to create a realistic, manageable spending plan, it is important to understand your spending habits, as well as to identify debts that occur on a regular, and on a more random basis. It is essential to take some time to determine your spending habits and obligations in order to make sound financial decisions later.
The initial process of tracking your spending will take a month. During this month, you will be documenting EVERY penny you spend. Keep in mind, every cent counts, and you may be surprised by how some seemingly small purchases actually take a big chunk out of your annual income. For instance, one cup of cappuccino costing $3.75 may seem like a small luxury, but over a year’s time, one cup of cappuccino a day adds up to $1,368.75.
You may find a notebook and a calendar useful to help organize your spending into categories. If you prefer to keep track of your expenses online, there are a number of free services available. For instance, www.budgettracker.com, www.trackeverycoin.com, and www.mint.com are just a few websites that offer this option.
Every day for the next month, collect your receipts from each day. At the end of the day, take a few minutes to organize them into categories. These will include, for example, groceries, dining out, gasoline, coffee, health and beauty, pharmaceuticals, etc. Your calendar, either on line or paper, will be used to track expenses that recur each month. These expenses will include rent or mortgage payments, utilities, credit cards, auto loans, phone, Internet, and cable service, and so forth. As part of collecting information to place on your calendar, be sure to also take into account APR, or annual percentage rates incurred by those debts on your loans, particularly the unsecured loans. Credit card debt is considered an unsecure debt, and the interest rates can be an important factor in determining costs you are incurring. The amount of APR that you pay on those debts can add up significantly if not taken into account when creating your spending plan. You also want to document those expenses that occur less frequently than once a month, such as personal property taxes, annual homeowner’s insurance, auto tags, holiday gifts, vacations, birthdays, and so forth. Some of these occasional expenses involve more choice and flexibility than others.
To round out this exercise, you will want to account for the cash flow coming in to your household this month. This can include pay received from work, alimony, disability, social security, stock dividends, and so forth.
If you are serious about getting your financial house in order, this is a crucial step in the process of taking control of your spending and creating a strong financial foundation for you and your family.
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Debra Mace is passionate about helping her community through volunteer activities. With these blog posts, she hopes to engage interested readers with ways to better their current financial situation. Debra works throughout the Shenandoah Valley providing sound financial solutions for individuals and families that struggle with getting their finances in order.