Does the end of the money come before the end of the month? Don’t let a zero bank balance catch you by surprise. The first step in getting your finances under control is to know where you money goes each month.
It’s easy to calculate how much you’re spending on bills that come regularly each month, like rent, mortgage payment, student loans, or a car payment. It’s the ones that vary that can catch you off guard. Your first step is to create categories for your spending. For example: Groceries, eating out, medical expenses, car expenses, etc. Then you’ll need a system for tracking those expenses.
Below are four suggested methods for tracking. You’ll need to dedicate a full month to this exercise to get a handle on where your money goes.
App method –Budget apps link your spending with categories you create. Some banks provide an app that will link to your debit card, or there are other apps you can download and link to your spending. How it works: Each time you go to the grocery store, for example, once you’ve put that particular store into the “grocery” category, the app will track it. If you use a bank card rather than cash, (like most people,) this is the easiest way to track your spending.
Receipt method – Keep the receipt for every purchase you make. Or keep a small notebook and write down every single purchase – from the cup of coffee at Starbucks to the weekly grocery bill. At the end of each week, add up what you’ve spent in each category.
Cash method – Put some cash in an envelope and mark on the outside of the envelope the category and the amount you put in. For example, put $50 cash into an envelope and write “Eat Out – $50” on the outside. If you need to replenish the envelope, write the additional amount on the outside of the envelope as you replenish. (You may want to do this to keep from carrying around too much cash, also). At the end of the month, you’ll know how much you spent on eating out by how much cash you’ve gone through.
Bank statement method – Go to your online banking site and look through your records. Every transaction should be listed for the month, and you can figure out what you’ve spent in each category by the name of the establishment.
In this exercise, you aren’t yet figuring out what your spending should be, but what it actually is. Be honest with yourself and write down every dollar you spend. Don’t forget to enter the little things – a quick lunch, coffee, movies. Those can add up!
This exercise is meant to help you see where your money goes. Also, don’t judge yourself! This exercise is like taking your temperature. The medicine (a budget) will come later!
For more on getting a grip on your finances, download the chapter on Finances for free from my book, Adulting Like a Boss: Your Grown-up Survival Guide.