Looking to make a real change in your financial future? Then you first have to know where your money goes.
So what does this really look like?
Make it simple:
- Make large categories, say 15-20 of them, rather than trying to pinpoint every expense into its own category
- Take the time to go through your statements, line by line
- Make sure that EVERY expense is accounted for
So what does this entail on a monthly basis? 📅
It means taking some time — depending on how much you charge, how many different accounts, etc, it could take a couple of hours.
Yes, a couple of uninterrupted hours… 🕒
Here Is How To Start
When John and I first started doing this, I dreaded this task. For us, it meant printing our bank statement — only one of them (thankfully!!) — and both of us sitting down with highlighters and putting each and every charge into a category.
We used our debit card almost exclusively and usually had very little paid out in cash.
So when we had a cash withdrawal, it was taken out for a specific purpose and we could then account for it into the correct category.
Take The Time To Find Your $$$
It was still time-consuming. That $60 spent at Walmart — what was that for??
We quickly got into the habit of keeping Walmart, Target and other “multi-category” store receipts so that we didn’t have to guess which category to count those as.
But we also didn’t go insane about it. 🤪
If we purchased diapers at the grocery store, then we counted them as groceries.
The same was true for cleaning supplies, shampoo or bug killer — all of those we simply lumped into groceries.
“But they aren’t food!”, you say.
True, but the beauty of this method is that it really doesn’t matter.
We were interested in the trends over time, not the exact amounts spent on baby food or cleaning supplies.
Saving on anything in the grocery category meant a win. 👍
At the time that we first started this, we were in a financial crunch and were watching every penny.
It was a very stressful time for both of us and sitting down to stare at the actual numbers made me extremely anxious.
How To Budget Stress Free
However, after several months of consistently going over our numbers and categorizing all of our spending, the true benefits started to become apparent.
I started to realize that I didn’t need to agonize over the decision of going to a sitdown restaurant or ordering a much cheaper pizza. I could see that because we made conscious decisions about our money, that in the end, the restaurant would balance out with a cheaper grocery total for the month, or maybe we would be $20 higher than the previous month.
It alleviated so much of the everyday stress of the numbers. Also, knowing where we were — in a financial sense — made me a lot more relaxed.
We were still pinching pennies, but I knew that we weren’t going to starve, or that buying a pair of socks to replace the holey ones in my drawer was not going to cause a disaster.
With everything accounted for into an appropriate category, it then became much easier to see where our money was truly going and where we had room to make improvements. More on that later…
Leaving The Country
As a side note, after leaving the country and beginning our world travels, we had to change to predominately cash spending — so many places did not take cards.
We struggled for a couple of months, trying to find the best way for us to keep track of our daily spending.
We tried writing it down on a sheet of paper each day (that worked — as long as we could find that piece of paper and as long as we could remember everything we had spent that day!) or trying to record it more frequently in our spreadsheet (but once again, we were counting on our memories — sometimes going off of how much we had withdrawn in cash and working backwards).
We finally figured out a simple method of using a Trello board which we could access from the phone and accounting for expenses immediately after paying for them.
We took the guesswork out of our expenses and now our monthly accounting goes even quicker because most of it is already categorized in Trello! (A simple memo on the phone would work as well — it doesn’t need to be fancy, just a way to actually keep track of your cash purchases.)
Let me know what some of your favorite tips are and share them in the comments below.
Interested in how our spreadsheet looks?