- Use one method to purchase your “stuff.” You can use cash, but I would recommend using a card (either a debit card or a credit card, based on your personal habits and discipline). Use that one card exclusively to make ALL of your purchases as best you can (if you use a credit card, pay it off in full every month come hell or high water). This will help you simplify the process and keep everything on one monthly statement that you can review each and every month and then transcribe onto a document that tracks your spending.
- Print the statement off at the end of the month and break your spending down based on categories (eating out, cable bill, phone bill, groceries, utilities, entertainment, home payment, etc.). Transcribe those numbers onto a spreadsheet that is included on this page (you can also use other sites to help you with this process — mint.com and powerwallet.com are two). It should take you less than 10 minutes per month, and that will help you sustain this process over time.
- Review your spending carefully. Where is your money going? Where can you tighten up? Are you spending more than you are making? If so, start tracking your spending weekly to keep yourself in check, until you get a handle on where your money is being spent. This is also the point where you ask yourself what a “want” is and what a “need” is. The budget is developed as you start to reduce the wants because of the important goals you have set for your future. Be honest with that person in the mirror; your financial future is at stake.
- Become more aware of your spending based on your previous month’s accounting. Cut your spending in areas that you need to cut. Don’t let anyone tell you where your cuts need to come from. You decide this based on your goals and values. This is YOUR spending, and that means you must design a plan that fits you. Don’t kid yourself though; this could be hard as you start to hold yourself accountable. After three months or so, it will be time to lock in a budget based on knowing exactly where your money is going.
- When crunching the numbers to make the budget fit the income, reduce your spending on the extras in life (fun, clothing, eating out, morning coffee, etc.), while sticking to an automatic savings plan (paying yourself first, before spending what remains). This will get you out of the rut of living paycheck to paycheck. Focus on saving at least 10% of your gross income and strive to get that number up to 20%, as you reach for financial freedom!
- Stay with it. Don’t set up a system that is really pretty and then gradually neglect it after the newness has worn off in a few months. Keep track of your spending based on a simple system where you use one card to buy your “stuff” and then review those purchases at the end of each month (it should require no more than 10 minutes of your time). Add the numbers up and keep yourself accountable month after month. You can do it. You need to do it. YOU are the answer!
