Before you can create a budget, you need to know how much you are spending (your expenses) and how much you are making (your income).
Some categories are easy to determine, such as a fixed rent/mortgage payments or an automobile loan, and some categories can vary greatly from month to month, such as your natural gas bill in the winter vs. the summer, or your grocery/dining out expenses.
For the variable categories, you need to track your expenses over a period of at least 1 month to determine how much to budget for each category going forward. Not only do you need to keep track of items paid for by check, debit card, or credit card, but you also need to keep receipts for all cash purchases and write down how exactly your cash is spent.
Tracking expenses will help you in two ways – you’ll have a better idea of spending to create a budget, and you may be surprised when you add up all the little discretionary purchases and where your money is going. If your income is variable, you will also need to track the amount each month.
How to Track Expenses?
- Write it Down on a Piece of Paper – one of the easiest ways to keep track of your expenses is by writing it all down on a piece of paper.
- Track expenses in a spreadsheet
- Use Free Online Software like Mint.com
- Install a Computer Program like Quicken or You Need a Budget – these programs do cost money, but if they work for helping you maintain your budget, they can worth it.
How We Do It
I currently use Microsoft Money (similar to Quicken…but no longer available) to keep track of our expenses. I have it set up where the program downloads the transactions from the financial institutions and then I code each transaction to a category. I can also split transactions to several categories.
Do you keep track of your expenses? What is your method to keep track? Is it working well to help you create/maintain a budget?