Guest blogger, Suzanne Cramer believes that having a realistic budget is a critical component to financial independence and it begins with tracking your expenses. Here’s Suzanne:
The dust is beginning to settle after your divorce and you realize several things; you will be okay on your own, your life is changing, and you need to learn to budget. While not difficult, budgeting is a big part of managing your finances and often we fail because we skip a very important step—tracking our expenses. Just like you get directions for a place you are traveling too, you need a roadmap for your finances. If you don’t know where you started, getting there will prove to be a daunting task.
Tracking your expenses is the first step to a successful budget. To help you get started here are a few tips for effectively tracking your expenses.
Keep Doing What You Are Doing
In order to track your current expenses you need to get an accurate picture of what you are doing right now, so keep doing it! (Within reason) By keeping track of what you are doing right now you will be able to see where you started and make adjustments depending on the results. For example:
• Are you spending more than you earn?
• Where are areas you can cut without reducing your quality of life?
• Could you earn additional income in some way to meet your expenses?
• What lifestyle changes could you make to reduce expenses?
Write it Down
Just as dieters often write down everything they eat or drink to see where they are failing, you should write down EVERY expense for at least two weeks, preferably a month. This may initially seem a little over the top, but sometimes our spending may be over the top and we don’t realize it until we see it in black and white. Be sure to include it all; your morning coffee stop, lunch with your co-workers, a pack of gum, and newspaper you pick up daily. Oftentimes it is these “little” expenses that are hurting us.
You can jot them down in a notebook, use a smart phone app, or only use your debit card to get a comprehensive look at your spending. Choose what you are most comfortable with so you can stick to it.
Once you have the data you can transfer it to a spreadsheet or online budgeting software application where you can create charts and graphs to analyze and categorize where your money is going. Be sure to include the following major categories as well:
• Debt Payments
• Savings/ Investments
• Groceries/Household Items
Now that you have a benchmark you can create a budget that works with your fixed and variable expenses that keeps you from being in the red each month.
The key to staying on track is to keep tracking and make adjustments along the way as your life changes. Regularly look at your spending, account for increases or decreases in income; for example if you are receiving alimony it may eventually go away and you may need to take on a new job or continue to make cutbacks. If you have never managed finances now is the time to start and tracking your expenses is the first step, so get started today and make it part of your routine.