Even if you've never kept a single New Year's resolution before, this could be the year you start. That's the best part about new beginnings, right? You can start over at any time.
If you're trying to revive the financial resolutions you made but a few short weeks ago, tracking your spending can help you stay on the right path. On the way, we've already done a little financial diagnosis with a net-worth calculation. We've also laid out a basic spending plan that puts your goals at the top of the priority list.
Now what? To stick with your plan, you'll probably need a system to find out whether you're following the map. Instead of filing that map away and forgetting it by February, you'll want to develop a way to make sure your spending follows your plan, more or less.
This need not be an endlessly complex series of spreadsheets that consumes hours of your time every week. There are some simple ways to make sure you stay on track -- ways that don't require a degree in accounting.
One method available to the technologically savvy are computer programs that will track your spending, along with your investments and virtually every other component of your financial life. Motley Fool Green Light recently went through the setup process for two of the most popular software packages, Quicken and Microsoft Money.
Using a computer to track your spending requires that you input some data. This can be great for anyone who uses a debit or credit card for most purchases and can easily download the transactions. You'll need to spend a little time setting up some spending categories, but then you can let the computer do the rest.
If you'd rather spend an hour cleaning the bathroom with a toothbrush than trying to set up one of these programs, then computer tracking may not be the best idea for you. Don't worry; you have some other options.
You can minimize the pain of tracking your spending by ignoring any category of necessary expenses in which your spending stays roughly the same every month. That probably includes things like your savings deposits, the rent or mortgage, your car insurance payment, maybe even your utilities.
That leaves you with a set of spending categories that you will need to track. This should include anything that varies a lot from month to month. Make sure to include your discretionary purchases, such as clothes and entertainment, in the spending that you track month to month. You'll find the most budget flexibility in those categories.
Now that you know what you're tracking, you need to figure out how. Here are some pretty easy ways to keep an eye on your spending:
- Cash: Withdraw money once or twice a month to cover the expenses you plan to track. When the money's gone, you're done for the month. If you use this method, you don't even need to "track" what you're spending your money on, unless you find it disappearing too quickly and you're stuck without enough to make some essential purchases.
- Envelopes: A variation on the cash method -- you can divide up your available cash for the month by category and deposit enough money in each envelope. This may prevent you from "borrowing" from the food budget to buy that fantastic pair of boots, only to find out later that you'll have to eat ramen noodles for 10 days to cover your shortfall.
- Receipts: If you use cash, or checks, or credit, you can track your spending by becoming an obsessive receipt collector. With your slips of paper in hand, you can then sit down every week or two and tally up your spending for each category. You'll need to write down any transaction that doesn't generate receipts, like all those Diet Cokes you purchased from the vending machine.
- Pencil and paper: Keep a small notebook and write down your expenses for each category on a different page. Then it just takes a little addition to see how your spending's adding up. You can do the same thing in a computer spreadsheet, especially if you want the computer to do the math for you.
Once you've done this for a month or two, you may find you don't really need to track your spending at all. Maybe you have a natural gift to keep all of these numbers in your head. For most of us, putting a record on paper keeps us honest, and it lets us see the trade-offs between spending on something now and saving the money for a later expense.
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