How to Budget – Step 1 – Where Does All My Money Go?

January 10, 2012 / MMD / No comments

THIS IS NOT going to be one of those “how-to” examples where you’re told to record ever purchase you’ve ever made. Doing that accomplishes NOTHING but wasting a lot of time. Besides, Mint.com can already do this for you automatically. I’ll have more on that later in this series.

Instead, look back through your checkbook from the past few months. What were your MAJOR expenses? Make a list of them. I highly recommend using Microsoft Excel if possible. And yes, there will be a link to the template we create throughout this series at the end.

Here are a few examples:

• Credit Cards

• Mortgage / Taxes (if not included in Escrow)

• Auto Loan

• Daycare

• Utility Bills (Gas, Electric, Water)

• Cell Phone / Home Phone

• TV / Internet

• Auto Insurance

• Life Insurance

• Cash

• Home-Owners Association (HOA) Dues

And one last major category:

• Misc.

We all have small miscellaneous expenses every once in a while: Haircuts, dues, gifts, etc. If it’s not a relatively large or reoccurring amount of money, don’t feel the need to complicate things and make it into its own category. For now, let’s just park these expenses under Misc.

If any of these are automatically debited from your credit card, then do not include them on your list. They will get covered by your “credit card” category. Listing them twice is a good way to confuse things and won’t really accomplish much. You can always just write yourself a note at the bottom of the page. For example: Cell Phone Included in Credit Card category.

Don’t Over-Analyze Your Credit Cards:

Again, we’re not going to list out every single credit card purchase. Later, I’ll tell you how to use Mint.com for that purpose. For now, let’s just group all your credit cards into one category called “Credit Cards”. That will not only make it easier to keep track of, but it will also give you a better idea of what you’re spending overall month to month. Knowing this “overall number” will be important when we try to make adjustments to your budget later on.

If your credit cards fluctuate a lot, just go with your average monthly total. Later on, we’ll adjust this number (likely down) in lieu of trying to meet some of your other goals.