Be sure to check out the first part of this series Get Your Mind In The Game
In order to become financially free you need to know where you are right now. You need to know how much money you are spending each month and on what you are spending it. If more is going out than coming in then you need to do a 180 to become financially healthy.
You can’t possibly know how much money you have going out unless you count it. It’s like those contests that ask you how many M&M’s are in the jar. Sure you can estimate it but you’re probably going to be off by 20-30% if not more. That’s a lot that you don’t know about. And how can you find out where you can cut back if you don’t know where it’s going? Then the answer is obviously that you have to count it. It’s not as bad as you think and it will have a major impact on how you view spending once you become aware of it.
These are a couple of ways to keep track of your spending:
Carry A Pad
Writing down in a small paper pad after you purchase is a not so great way of keeping up with your purchases because I’m sure you’ll be in a hurry after some of those purchases and forget to write them down. However if you can remember to write it down after each purchase you will have a very accurate picture of your spending.
Update From Online Balance
When you use a debit card your purchases usually show up the same day. At a point in time(end of the day/week/month) sit down and view your purchases from your online account and write them down and place them in a category.
This is the way I do it because most of my purchases are with my card. If I do pay with cash I can see where I took the money out at an ATM and can assign it because I took that money out for a purpose.
Automatic Tracking (Almost)
You can use an online program like Mint.com or a desktop program like Quicken to automatically keep track of your expenses. This is a great way to do it if you don’t have any time available to do it the other ways. The down side is that it doesn’t always categorize things the way you want to so you’ll have to take the time to categorize some of your expenses. But overall it does do a great job of keeping track.
As you can see there are several different ways to keep track of your money. If you don’t like any of these ways then make something up or mix and match. As long as you work towards seeing where your money goes it doesn’t matter how you do it.
Personal finance isn’t a one size fits all thing. Every one is different so find out what works for you. In this case find out what works best for you to keep track of your spending.
I just want to emphasize that actually being aware of how much you spend each month will change your life. Just think about what it would be like find out the world was always round when you thought it was flat. Imagine what knowing that information would allow you to do. It would make you expand your horizons and do things you never thought you could do.
Being aware of your money will allow you to control it so you can do things you’ve always wanted like a long awaited vacation.
If you don’t do anything else at least do this step of tracking your spending because it will make a world of difference.
What was it like when you first started to become aware of your spending?
Check out part 3 of this series Boundries