You work hard for your money and bring home a healthy paycheck, yet it never seems to be enough. As you struggle to pay your bills, you wonder, "Where did the money go?" Find out once and for all by spending a month tracking your spending. In just 30 days, you'll see exactly where your money goes and find expenses that you can easily cut. This exercise in awareness is perfect for getting the entire family involved. In fact, you may be surprised at their ideas for cutting costs.
What You'll Need to Track Your Spending
Tracking spending doesn't require a huge initial investment. In fact, you can get away with a notepad and a pencil. However, you might also want to use your computer or iPad – if you already own one. For example, you can use a spreadsheet program such as Excel to enter, categorize, and calculate your spending. If you have money management software such as Microsoft Money or Quicken, you can use the software to do this. Several apps are available for smart phones and tablets, too. One of the biggest advantages to using software or an app is that the calculations are automatic and accurate. In addition, you can easily categorize your spending and see where it goes.
Getting the Family Involved
Call a family meeting to discuss the need for tracking expenses. Explain that this doesn't necessarily mean making sacrifices; it means that you want to understand where the money goes so that you can make better decisions in the future. Help your family get on board by tying the discussion into a shared family goal such as paying for a planned vacation or extracurricular activities.
No matter what system you use, you'll need to record every single expense including cash transactions. Don't forget to enter your monthly bills as you pay them. Believe it or not, this is easy to overlook, especially if some of your bills are automatically withdrawn from your bank account or deducted from your paycheck.
Ask for a receipt for everything and then enter all of your family's expenses at the end of the each day. Give each family member an envelope for their receipts and collect these envelopes each day. If you do this daily, your receipts won't pile up and you'll become more in tune with your spending habits.
Keep everyone involved and engaged by taking turns recording the expenses. If you have a family of four, each person could be in charge for an entire week. You could also rotate each night. Since each family member will see the receipts and expenses over the course of a month, everyone will have a better understanding of your household's expenses. If you have younger children, they may not be able to enter the figures, but they can collect envelopes or hand the receipts to you each night.
Reserving Judgment and Using Positive Reinforcement
As you enter your expenses throughout the month, try to reserve judgment. Don't make your child or spouse feel bad about an expense. Just take the receipt and enter it without analyzing it or lecturing the other person about alternatives. Remember, you need your family to buy into the whole concept of spending less. This takes time, information, and introspection. You have the time – a full 30 days – to learn where your money goes. You have the information – receipts for all expenses – to work off of. And as you examine this data, you'll also start thinking of solutions. Let the process work without getting ahead of yourself or inadvertently discouraging participation.
You can also reward your family members for participating. This doesn't mean splurging on a dinner out – you're trying to save money after all. However, sharing a bag of chocolate coins or a few PayDay candy bars with your family members won't break the bank and could be a fun way to say thanks for participating in this money management exercise. You could also play Monopoly or rent a silly personal finance-related movie such as The Money Pit.
Adding it All Up
Eventually, 30 days of tracking expenses will come to an end. Now it's time to add it all up. Start with a grand total. This number may surprise you. Compare it to your take-home pay and determine whether you are living above or below your means. If you are spending more than you take home, something definitely needs to change. If you are spending less than you take home, you're off to a great start though you still may have areas that need work. Next, break your spending down into two broad categories: necessities and luxuries. From there, you can break the spending down even further if desired.
Once you have your numbers tallied, call another family meeting to discuss the findings and brainstorm ideas. Take notes and let everyone have a chance to pitch in. While you may already have determined that going to the movies every weekend is too expensive, it's best if your family members come to the same conclusion on their own. After all, what's more effective: a parent saying "no more movies" or a kid suggesting that instead of going to the movies each weekend, the family should get a Netflix account?
Tracking spending for a month is an eye-opening exercise that delivers real insight into your spending habits. Comparing your spending to your take-home pay can serve as a wakeup call and prompt you into taking action before you get into debt. In contrast, it can also show you that you have the means to fund your retirement, an emergency fund, college fund, or a family vacation. This simple exercise is a must for anyone that wants to take charge of their personal finances. Find out where you stand financially and discover all those hidden expenses that bite into your paycheck by spending a month tracking your expenses.