When bills are suddenly being paid late, or not getting paid at all, there is obviously a problem with the budget. In these circumstances people often begin thinking about what to cut. However, without knowing where all the money is going, it is impossible to address the most common ways money is wasted. Big expenses like car payments, rent or utilities are often targeted as a way to reduce bills, but for many the problem is all the little things that add up over time.
Track your Money
It is important to track money to be able to know where it all goes. It can be a very eye-opening experience to realize how much is actually wasted on optional items that do very little to improve the quality of life. Of course, how to properly track expense spending is the key. If done incorrectly it can lead to continued bad habits.
To begin, it is important to decide what method would work best. Some people find a small notebook is the easiest, while others track their spending with a spreadsheet program on a tablet, smart phone or laptop. Whatever is the easiest to carry, to remember and to use, is the one to pick. Just make certain there is one final spreadsheet at the end where all information is logged. Remember some other key points when tracking.
- Everything needs to be accounted for, even coins in vending machines and the money chipped-in at the office for a birthday gift.
- Keep receipts that contain multiple items. Categorize these according to what is a necessity and what was optional. For example, the chicken for dinner is a necessary expense, the chocolate bar at the counter was an extra.
- Do not wait until the end of the day to make entries, record each item as it is purchased.
- Track spending for at least 30 days.
- Do not adjust spending or routines in any way during this time.
- Even if the item is purchased with unexpected money, record it. Spending found money or shopping with a gift card from a friend is still spending.
Once all expenses have been logged for at least 30 days, break down where everything has gone. With it all categorized, it is easy to see where waste is occurring. This information makes it much easier to see how to make changes to ease the budget or being building a savings account.
