The Budget Beat – Categorizing Your Spending

I have great intentions but my to do list always seems to get in the way.  I had hoped to post this last week but Halloween festivities took more time than I expected.

This week I want to touch on the importance of tracking your spending within specific categories.  This is a great way to see where all of your money is really going each week. Would it surprise you if you found you spent more on entertainment and dining out than you spent on all of your utilities combined!  When I first sat down to develop my budget, I found that entertainment expenses were at the top of my list of monthly expendatures!!  It is amazing how fast those little things can add up!!

This is a super simple process and just requires you go a step beyond what we talked about last week in how to determine your spending.  Just think of it as placing all your receipts into various piles based on categories.  When all is said and done you will see how much money you spend on food each month, how much on entertainment expenses and so on. 

You can create a few broad categories or even go so far as to break it all down into small sub categories. I find that the easiest way to do this is via a program like Mint.com or Quicken.  Of course you can do it manually, it will just take a little more work to determine your end result

Ultimately you will have two broad categories that will encompass everything – necessities and luxuries. From there you can create a hierarchy and rate your categories by importance.  I would hope that you would choose to make all the items in the necessities category more important than any of those in your luxuries category.

Once you know your spending within each of your categories, you can now start to attempt to modify your budget by creating limits and assigning specific amounts to be spent each month within your specified category. It may take you some time to play with your limits to get it just right. 

Finding ways to decrease spending within specific areas can be tricky, especially some of the necessity areas but it can be done.  Next week we will explore some of the ways to decrease spending in areas that appear fixed or difficult to modify!

Note: I am not a financial advisor.  I am offering tips and ideas to help you stretch your monthly budget

The Budget Beat – Determine Your Spending

Welcome to my new weekly feature where we will be talking about budgeting and saving money. I always get lots of questions about my budget so I thought today we would go over how to determine your spending. 

In order to save you have to know what you spend! To create a budget you have to know where your money is going on a monthly basis.

In order to get a good idea of your spending you need to track your spending in ALL areas for 1 -3 months.  Three months may seem like a long time, but the longer you track your spending, the more accurate your data will be. 

To really see where your money is going you need to account for every penny you spend.  If you spend 50¢ for a soda you need to write it down!  This might not be a fun process but it sure is eye opening.  Most people are surprised at just how much money they spend on unnecessary items each week. A cup of coffee here, a run by the drive through there can add up to quite a chunk money.  Think about it, if you grab a $1.50 cup of coffee and a $5 drive through meal each week, you are spending $338 per year.  Wow–that’s is more than my water bill for a entire year!  Analyzing your spending can really give you great perspective!!

Once you have all the numbers and analyze your data the main goal is to find that your spending is less than your earnings!   You will have a bunch of information and it will be easier to see specifics by grouping like items into categories.  Often I begin with large categories and then sub-categorize as needed.  You might have a large category called Auto and within the Auto category you could have subcategories such as: car payment, gas, and service.  The subcategories will be helpful in determining areas where spending can be decreased.   

This may take some time but the information you gather will help you determine not only where your money goes each month but also areas where you might be overspending. 

Next week we will go into more detail about budget categories.