On our Credit Cards and Consumer Debt discussion board the other day, Fool community member "MinnesotaGirl" posted a budgeting epiphany she'd had. Permit me to share it with you:

.[my dear husband] finally sat down at the computer and entered all of his stuff into Quicken from the past several months. So this morning I looked at how much we are really spending by comparing the first six months of 2006 with the previous six months. A couple of surprises:

  • $630 a month on groceries (I thought I was spending $400-500)
  • $200 a month on dining out (How can that be? I bring my lunch to work every day and we hardly ever go out to eat... or so I thought!)
  • $150 on telephone (two cell phones and a land line)
  • $300 cash (uncategorized further; approximately equal amounts between my husband and myself, though I would have sworn that he was the spendthrift)
  • $175 a month on gas (even though I take the subway to work)
  • $375 on kid activities (music lessons, karate, scouts)
  • $50 a month on books and CDs (that is almost entirely my husband.)

On the positive side, in the first six months of 2006, we spent less than $300 on clothing (for four people, including two growing boys) and under $75 for entertainment. And overall our everyday expenses have gone down about 15% since last year, so that's a step in the right direction.

How to do it
This kind of budgeting exercise isn't too hard to do. Using software such as Intuit's Quicken can help, but so can a simple notebook. A budget is all about tracking and reporting all your sources and amounts of income, and all your uses of income. It should answer the questions "Where's all my money coming from, and how much is there?" and "Where's it all going?"

Before you get started, and to make the process more suspenseful and fun, jot down how much you think you're spending on food, entertainment, travel, clothing, charity, investing, etc. Then record how much you want to spend on them.

Next, gather information. For one to three months, record all your financial inflows and outflows. (One month will do, but a few more will maximize accuracy. If you charge most things in your life, you might be able to complete the exercise right now, with a stack of recent statements.) Try to account for big expenses that occur once or twice a year, such as car insurance, too. Jot down how much they amount to per month. During this two- or three-month period, save every single receipt you get for any expense. If you don't normally ask for or keep receipts, do so during this period. Also, carry a small notebook to write down any cash transactions.

After the information-collecting months are finished, sit down with all your records. You'll also want a pad of paper, a pen or pencil, and a calculator. Start making lists of all the inflows and outflows. Group them into categories and total the amounts for each. For example, you might list all your eating-out expenses and your supermarket expenses, and lump them together in a "Food" category. Then calculate what percentage of your income is spent on food. (Of course, if you fine-tune things more, separating supermarket and eating-out expenses, for example, that's even better.)

Now, step back and see what you've got. You should be looking at a fascinating detailed record of where your money comes from and where it goes. Compare your actual expenses with your initial estimates and see how close you were. Assess whether you're saving and investing as much as you want to. See what changes you need to make in your habits to meet your goals.

Perhaps you can hit your savings goal simply by cutting out HBO and your subscription to People magazine. Buy a water filter instead of endless jugs of bottled water. Shop at discount retailers, such as Target and Costco, and buy in bulk. You might be able to save a tidy sum by giving slightly less-extravagant gifts. Also, don't assume that fixed expenses are completely fixed. You might be able to refinance a loan at a lower rate. A little comparison-shopping might turn up a less-expensive insurance policy. Consider switching credit cards -- some will pay you cash back on every purchase.

Lessons learned
MinnesotaGirl listed some lessons she learned from this exercise:

There are a few obvious leaks in the budget that I think we can address without too much pain. Food is clearly a biggie here. Time to get serious about sticking to the grocery list and eating out of the pantry and the freezer!

I've been guilty of projecting too much onto [my dear husband], thinking that he had a spending problem when it's clear that neither of us is being careful enough with our money. Geez, no wonder he hates it when I try to talk about money!

She also added: "I really need to read this board all the time -- it keeps me on track and inspires me to keep going, even if it's just baby steps!" I concur here -- whatever you're interested in or are trying to do, you'll probably find support and even new friends in our online community. For lots of ideas on how to save money, visit our Living Below Your Means discussion board. To learn from fellow budgeters, drop in on our Budgeting discussion board.

You might also be interested in articles on budgeting worksheets, reasonable household expenses, and calculating annual spending rates, and articles:

Let us help
If you're interested in lopping off several hundred dollars from your monthly or yearly expenses, or want to learn how to make more of the money you have, take a look at our brand new newsletter service, Motley Fool GreenLight. Loaded with personal finance guidance and practical advice, it'll pay for itself in short order.

Here's to a wealthier life!

Longtime Fool contributor Selena Maranjian 's favorite discussion boards include Book Club, Eclectic Library , Television Banter, and Card & Board Games. She owns shares of no company mentioned in this article. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . Costco is a Motley Fool Stock Advisor pick, while Intuit is a Motley Fool Inside Value selection. The Motley Fool isFools writing for Fools.