Why is There So Much Written About Personal Finance?

Why is there so much written about personal finance? This is a question I sometimes wonder about. You constantly see a new stream of personal finance articles coming out of every magazine, news source, blog and even entertainment reports. This isn’t all disappearing into the ether either. People are reading them. People seek them out. People are always looking for more information. That seems to answer this question, but does it really?

Yes, people look for it, so others produce it. Basic supply and demand. But the principles of personal finance are pretty simple. Most of the articles written contain no new information. They simply rehash stuff we already should know. So why can companies keep putting out so many articles about the exact same thing and people never stop reading it? So maybe the better question isn’t why is there so much written about personal finance, maybe the question should be why do we want to read so much about personal finance? Even when it’s the same information just repackaged.

Well, here’s the answer. It’s because we didn’t learn it the first time. The principles of personal finance are pretty simple. Improve your skills, make more money, spend less than you earn, then save/invest the difference. For the most part most adults know that this is what we need to do. How to do each of these steps is skill in its own right, but not nearly as complicated as the number of personal finance articles available would indicate.

So, we know what we need to do and we have an idea of what we need to do. So, why do we need more articles about it? I’ll use an example from a completely different field. Why do we have so many weight loss programs? We know that if we simply eat right and move a little we’d all be in great shape. We know this, but we don’t want to believe it. We like our processed food and added sugar. Science has shown over and over that all we have to do is eat a healthy diet. The kind of diet that humans have been eating for thousands of years. Instead of eating healthy, though, we continue to eat junk food. We keep looking for ways to lose weight without having to give up our junk food. We don’t try and solve the actual problem, we try and keep our vices and patch the symptoms.

It’s the same with money. We like our toys. We like our stuff right now. We aren’t willing to wait until we save up. We also aren’t willing to give up on things that we couldn’t otherwise afford. So we spend our money. We buy the big screen TV that we don’t need and can’t afford. We buy the big houses and become house poor. Then we look for other ways to solve our financial problems. Just like when we try and lose weight we don’t attack the actual problem, just the symptoms. When it comes to personal finance we don’t try and control our spending and maximize our income. We spend all we want then complain when we can’t afford what we want.

So why is there so much written about personal finance? It’s because we’re constantly looking for a magical solution that isn’t there. The magic healthy pill doesn’t exist. The magic money machine doesn’t exist. So we see a lot of things written. The truth and crazy ideas. We don’t want to hear the truth, but we still sometimes read it nodding our heads. We ignore the advice though because it might mean giving up our expensive habits. Then we read the crazy ideas, try them then fail. We blame the crazy idea not ourselves, even though we know better. So we go back and read more.

Though there are probably an infinite number of ways to make and spend money, the basic formula for everyone is the same. Whether you’re rich, poor or somewhere in between if you want to have a balanced and happy life you need to keep your finances in check.

What does that mean? It means make money doing what you can, invest in yourself to increase your skill set, control your spending to spend less than you make, save and invest the rest. That’s all you have to do. The rules for personal finance and even financial independence haven’t changed in hundreds of years. The details change constantly, but the basic rules haven’t. And it’s not the details that all the new articles are about. They’re about the basic rules.

How can you apply this to your own life? First accept that if you want to improve you’re going to have to make changes. Some of those changes will be difficult. Some of those changes will take a little while to get used to. Then follow the rules. Make money, increase your skills so that you can make more, control your spending, then save and invest the extra money.

Don’t worry about what other people think. Don’t try and live up to someone else’s ideas about what you should do. Think for yourself. Set your own goals and work towards them. If you need a better understanding of the basic rules you can read one of my favorite books on the subject. It came out about 90 years ago, and was put together from writings that had been around years before. It’s called The Richest Man in Babylon by George Clason. The book is a series of stories set in ancient Babylon that describe the core rules of personal finance. It’s entertaining, easy to read and full of useful information.

The bottom line? Do what you know you’re supposed to do. You already know how to be rich. You just have to do it. You just have to accept that you don’t need to have everything that other people have. Most of that stuff you probably don’t really want after the glitter wears off anyway. Instead focus on what is important. Live within your means and make room for the truly important things. Ignore the rest. And in the end you will be rich. Maybe even retire early.

Budgeting Without a Spreadsheet.

A lot of the time when we talk about budgeting we talk about writing everything down in a spreadsheet, and keeping track of all your spending. Not everybody is a spreadsheet person. In fact I’d guess that most people aren’t in love with spreadsheets. They do work, and it is an excellent way to manage your money. If you can stand them, anyway. But what if you hate spreadsheets, but still want to manage your money? Well there are several ways to budget without using spreadsheets.


Envelope method.

This is one of the most popular non-spreadsheet methods. To do this you get a bunch of envelopes. On each one write one of your budget categories; like groceries, entertainment, rent, etcetera. Then when you get paid you put a portion of your money in each of those envelopes. When the envelope runs out of money you can’t spend any money on that. This may take some planning to know how much of your paycheck you should put into each envelope. You can use my post Don’t Create a Budget Yet. Part 1 – Find Out Where It Goes to learn one technique for figuring that out.

In today’s electronic age it’s sometimes impractical to use physical envelopes. Especially for larger things like vacation savings. In this case you can set up multiple savings accounts. Most banks will allow you to do this. Just label each account based on what you want to use the money for.



This is one of my favorites. Now it is even better. You can let the software do all the work for you. You can either buy a program and enter each of your purchases and paychecks into it. Or use a service like Mint.com or an app like Level Money to compile this information for you. Either way you enter budget amounts and the software will categorize it for you. Just pay attention to where the software puts your transactions to make sure it does it correctly. Most learn after a while and will get pretty accurate. These programs can also alert you when you start to get close to your limit.


Using Lists

Sometimes a spreadsheet may be overkill. Especially if your finances are pretty simple. In this case a simple list may be all you need. Just write down the important information. For example, if most of your stuff is set, but you want to control your eating out budget then just write down when you eat out and how much you spent. This will help you keep track so that you can see how much you’re spending.



Budgeting is one of the most powerful ways to improve your finances. But you don’t have to use the standard budget spreadsheet. There are a lot of different ways to budget. This is just a quick list of three ways people I know budget. There are countless other ways to do it. Let us know if the comments how you budget. Do you have a special way that helps you keep track?

Financial Briefs – Volatility is Not Risk

Financial Briefs are a new section here at retirement is possible. They are short posts, generally only 500-600 words, covering a very specific topic. The idea is that you can quickly see a bit of news, find out how to solve a problem, or get a new insight. Let me know what you’d like to see in future Finance Brief posts. To see more Finance Brief posts check out the Finance Briefs Index.


One thing you commonly hear when it comes to the stock market is how risky it is. You hear this a lot when the market is going down. Even sometimes when it’s not. You also hear that it’s like gambling. The market can appear to be risky, but that doesn’t mean that it is. The stock market has gone up and down as long as it has existed. Keep in mind that stock trading has existed since before the United States existed. And in all that time the markets have gone up and down. But just because it goes up and down doesn’t mean that it is risky.


The stock market in general isn’t risky It’s volatile. Volatile means that it goes up and down. So in the short term the market will add and lose value. Sometimes a lot, and sometimes in a short period of time. But over the long term the stock market in general works its way up. That’s because the day to day market price is based on short term information. The long term price is based on the foundational health of the long term economy. In the long term the global economy is strong because we produce countless goods and services and rely on those for our continued existence. This means that even when we have a bad year we will still eat. We will still buy things. We will still need transportation. So eventually the market will recognize that and correct.


Now, this is about the market as a whole. Individual stocks may be riskier since the strength of an individual company is rarely stronger than the global economy. So how do you maintain the safety inherent in the global economy? Buy lots and lots of stocks in different companies and industries. How do we do that? The simplest way, especially for new investors, is to buy into a mutual fund. I recommend an S&P 500 index fund since it will give you the stability of owning stock in 500 of the strongest companies in the US. It will occasionally go down in value. But in the long term it will go back up. That’s because the market as a whole is volatile not risky.


So what is risk? Risk is the chance you’ll lose money permanently. Diversification and research are the two best ways to get around risk. Diversify by buying stocks in several companies. Or better yet buy mutual funds so that you can effectively buy stocks in hundreds of companies. Second, do your research. Buy into companies that are not only making money, but also have a solid plan for maintaining it. A company like Procter and Gamble owns several multibillion dollar brands covering household products that people use every day. That is something very difficult for another company to take from them. It makes good money and has a pretty good plan to make more. A company like P&G continued to make money during the 2008 recession, but the stock price went down. Since the company was still making great money the stock price eventually went back up to reflect that.


In short, risk is the chance you’ll lose your money. Volatility is how much the stock price moves up and down. If you buy solid companies then ultimately the value will be maintained and the price will go up. Even though at times the price will go down.

Financial Briefs – Pay Yourself First.

Finance Briefs are a new section here at retirement is possible. They are short posts, generally only 500-600 words, covering a very specific topic. The idea is that you can quickly see a bit of news, find out how to solve a problem, or get a new insight. Let me know what you’d like to see in future Finance Brief posts. To see more Finance Brief posts check out the Finance Briefs Index.


The single biggest reason that people don’t save is that once they spend their money there is nothing left over to save. You get your paycheck. You pay rent. You pay the utilities. You buy your groceries. By the end of the month there is nothing left in your account to save or invest. This is a very common problem with a surprisingly simple yet sometimes scary solution. Pay yourself first.


This may sounds scary since you know that at the end of the month you are out of money. So in theory this sounds like an impossible task. But it’s not. Look at it this way. Before you even get your paycheck taxes are taken out. Social Security, income tax, yadda, yadda, yadda. They’re all taken out before you even see your money. That’s because the government and your employer learned long before you were born that if the money comes out of your paycheck before you get it then you won’t have much of a problem paying your taxes each year. That’s because we get used to living off of the money we receive. For the most part we figure it out.


This is also why you hear about people making millions of dollars then going broke. They got used to spending all of their money when they saw it so they didn’t have any left to pay taxes or loans. This concept works both ways. We as consumers figure out how to spend all the money we make, but we also figure out how to only spend the money we make. Assuming of course you don’t take out debt. If you’ve been reading this site for any length of time you know that I consider debt a bad thing for most people most of the time.


So what do we do? First, pay yourself first. When you get your paycheck put some of it into a savings account. Start off with just a little bit so that you can get used to having less to spend. You’ll notice that after a few months you don’t even really notice those few dollars missing. After you do that put a little more in savings. Keep raising the amount you put into savings each paycheck until you are saving enough to reach your goals.


Sometimes it’s tough to put the money into savings ourselves. Especially when you already have bills that need to be paid. In this case you can do one of two things. You can have your bank automatically pull money out to go to savings whenever you get your paycheck. Talk to your bank about setting up the automatic draft. The other option is to have your employer deposit a part of your paycheck into a separate savings account. Many companies can set this up for you. Just ask your HR department.


The point is that if you pay yourself first then you will be able to save money. You also will get used to living on slightly less money. Start off with a small amount at first. The first time I did this I only put 5 dollars away. That’s all I felt I could afford. But it was a starting point to saving even more.


What kinds of things do you do to help you save more or to make it easier to save?

Mutual Funds, ETFs and CEFs.

There are a lot of different ways to invest your money. Buying individual stocks is one of the most well-known, but probably isn’t the best for most people. In fact it can be downright scary when you’re just starting out. That’s because when you’re first starting out you may only be able to buy one stock. Then your entire portfolio is tied to this one stock. If the company has a rough time and the stock goes down you could lose a lot of money. At least in the short run. That’s why I usually recommend that new investors don’t start with only one stock. Instead, start with a few hundred.

How do you start with a few hundred stocks when you can only afford to buy one? With an investment that includes a lot of stocks. Mutual funds, Exchange Traded Funds and Closed End Funds are three examples. Each of these can be bought and sold by new investors at most brokerage firms. They each include many different stocks. So what are they and how do you use them?

Mutual Fund.

Mutual funds are one of the best places to start for new investors. A mutual fund pulls money from a lot of different investors. The fund manager then uses that money to buy different stocks based on the fund’s goal. There are mutual funds that focus on S&P 500 stocks, utility stocks, medical stocks, and pretty much any other type of stock. There are also mutual funds the focus on investing in real estate, bonds and even insurance.

To buy into a mutual fund you invest whatever amount you want. Most funds have a minimum amount to start. The money is then pulled with other peoples’ money to buy the stocks. You can buy in at any time, and when you want your money back you sell the fund. When you buy in you buy based on the amount of money that you want to invest. Not based on the current share price. Most funds have a minimum of 2500-3000 dollars. Some funds though can have minimums upwards of 100,000 dollars or more.

Fees vary from fund to fund. With some you have to pay a fee to get in, some collect a fee when you sell and most collect an annual fee. The annual fee is collected out of the fund itself, so you don’t really see it. It will be reflected in the growth of the fund though.

Exchange Traded Fund (ETF).

Exchange traded funds are similar to mutual funds except that you buy them like a stock. So instead of investing a certain amount of money you buy the number of shares that you want. This can be a good place to start when you’re first starting to invest since you can buy as few or as many shares as you want. That may be less expensive than reaching the minimum to buy into a mutual fund.

Otherwise ETFs work the same as a mutual fund. They own stock in many companies so they help diversify your investments. ETFs generally follow an index like the S&P 500, so fees are low, and the price can be more predictable.

Closed End Fund (CEF).

Closed end funds are kind of a cross between ETFs, mutual funds and regular stocks. There are two ways to invest in them. You can invest when they are created or buy the shares after market. For today we’re only going to look at investing in them after they are created. When a CEF is created they pull together the investors’ money and use that to buy stock. The company is incorporated and they issue shares like a regular company. So it’s kind of like a company that just owns stock. Then they sell the shares just like any company. You can then buy and sell the shares just like any stock. The company isn’t involved with people buying and selling its shares. It only maintains its investments. Unlike mutual funds it doesn’t take in any new money. You buy shares from someone who already owns some. Just like a stock the value of the CEF goes up and down.

The advantage of a CEF over a mutual fund is that a mutual fund has to deal with money coming in from investors and money going out that investors want. CEFs don’t have new money coming in and they don’t have to pay out money to investors that want to withdraw money. Because of this they don’t have to maintain cash incase an investor wants to withdraw some money. They also don’t have to incur additional expenses to buy new shares when new money is invest, or sell shares when money is withdrawn. CEFs do have maintenance expenses just like mutual funds and ETFs, and like those it’s pulled directly from the CEF, so you only see them in the fund’s performance. Beyond expenses, another difference between CEFs and mutual funds is that since the share price of a CEF goes up and down like any stock, sometimes it is actually lower than the value of the stocks that it owns. Buying at this time can be like buying the stocks it owns on discount.

There are a lot of ways to begin investing. Before you start any investing, though, be sure to read the prospectus. Do your due diligence. Make sure that the investment is sound. Starting with options like the three in this article can be a great way to diversify your money. That will help your money stay safer and more stable through market ups and downs.


Have you used any of these three? What was your experience? What would you recommend to new people that are just starting out?

Money Can Buy Happiness.

It is commonly said that money can’t buy happiness. I used to hear this a lot as a kid when I talked about wanting to be rich. As I got older though I’ve come to learn that money really can buy happiness. Just not the way most people think of it.

The Problem With Buying Happiness.

The problem with the money buying happiness thing is that most of the people that say money can’t buy happiness are thinking of people that win the lottery then end up miserable. People that say that may also think about how you can’t buy true friendship with money the way you can buy a fancy car. And buying new trinkets doesn’t really make you happy. Certainly not truly happy in the long run. While that is true, that isn’t how money buys us happiness. It’s also not why we want it to.

The Psychology.

So what’s the point of money then? Well, it lets us buy things. But that’s not why it can buy happiness. This really goes back to something called the Hierarchy of Needs. In 1943 a psychologist named Abraham Maslow published a paper called “A Theory of Human Motivation.” The paper proposed a List of needs that people have. The needs range in order from physiological needs like food and water to more abstract needs like self-actualization.

So what does a paper from 1943 have to do with buying happiness? Everything. You can buy happiness by using your money to satisfy your needs at each level. By meeting each level you increase the stability and completeness in your life.

The Needs.

So, how does that work? Basically, the hierarchy of needs lists different needs that people have. As they fulfill some needs they move on to others.


The first level is physiological needs. These are things like food and water. The basic things that keep you alive. Minimum shelter and basic clothing would fall into this category as well. Most people in developed countries meet this need, but not all. Going from nothing to meeting this need will increase your happiness. It will also give you hope.


The second level is safety. This covers physical and psychological things like personal safety, violence, war, stress and other threats. This also includes things like financial security, fear of job loss, and political stability. This is where most people live. This is also the need that most financial advice addresses.

Meeting this need begins with things like a savings account. It can also mean learning a new skill that can make you more valuable to employers. You can use money to increase your security, both physically and emotionally, which satisfies this need.


Once your basic physical needs and safety needs are met people tend to want to improve their relationships with others. This includes things like marriage, family and friends. Money can buy happiness here when it’s spent on spending quality time with people you care about. This might mean taking a vacation, or just taking time off of work to spend with your family. This could also include spending money on activities that you enjoy such as sports or clubs.


Once you belong to a group you want the group to care about you and respect you. That’s where this level of the hierarchy of needs comes in. This is where a person gains respect and recognition within their group. This includes both respect from the rest of the group as well as self-respect. Even though you really can’t buy respect you can use your money here to meet this need and lead to more happiness. Spend money here to improve yourself and improve those around you. People respect those who have accomplishments, talents and abilities. Money can be used to help gain those. People also respect those that use what they have to help others. Use your money to help other people learn and become better. You can also use your money to support causes that you believe in.


This is after all of your needs are met. You don’t have to worry about where your next meal is coming from. You can sleep safe at night. You have friends and family that love and respect you. So where do you go next? Now it’s time to accomplish some of those goals you’ve been putting off. At this level you work to become the best that you can be. This may mean learning something knew that you’ve always wanted to learn. You could become an expert at something that you enjoy. You might want to be the best parent that you can be. Money can be used to meet this need by helping you fund these things.

So, How Does Money Buy Happiness?

Buying trinkets doesn’t buy you happiness. Blowing your money on temporary things that don’t have real value to you does not buy happiness. What buys happiness is using your money to fulfill these needs. Especially if spending the money can move you from one level to the next. For example, money can buy happiness when you save up enough to pay for that dream vacation. Yes, the vacation may be temporary, but the experience and memories can be very fulfilling. Even life changing. Another example would be getting a college degree in something that you are interested in after you already have a career.

The point is that money can buy happiness when you use it to improve your life; whether it’s building your retirement account or putting your grandkids through college. If it helps fulfill the hierarchy of needs or even pushes you to the next level the money spent will buy true happiness.


Do you spend your money buying true happiness? Is there something else that should have been included?

Financial Briefs – The Problem With Retirement Calculators.

Finance Briefs are a new section here at retirement is possible. They are short posts, generally only 500-600 words, covering a very specific topic. The idea is that you can quickly see a bit of news, find out how to solve a problem, or get a new insight. Let me know what you’d like to see in future Finance Brief posts. To see more Finance Brief posts check out the Finance Briefs Index.


The Problem With Retirement Calculators.


Understanding how much money you need and how much you’ll have to meet your retirement needs are the hardest parts of retirement planning. Retirement calculators are a great way to estimate those needs. There are a lot of very good retirement calculators out there. Two of my favorite are Vanguard’s Retirement Income Calculator and FIRECalc.


Retirement calculators are a great place to start, but they can be very misleading. Especially as you gain a stronger financial base. You may need more or less than what they estimate. And you may have more or less when your retire than they estimate. Here are some considerations when doing your planning.



How much will you realistically need? Most people only need 50%-80% of their preretirement income. Many people need far less. Some with health issues may need more. As you get older that percent may change as well.

Your house.

If you own a home then you may have your house paid off when you retire. This can greatly reduce how much you need. You can also sell your house and move to a smaller home when you retire. This will reduce the amount of money you need in retirement and may add a bit to your savings account.

Pensions and Social Security.

Most calculators don’t take these into account, or they may not do it in a way that works for your situation. Social Security can be a large part of your retirement account. Check out my post The True Value of Social Security. Use the Social Security Administrations calculator to estimate what you’ll get.

New expenses.

Retirement may mean new expenses like travel and increased medical bills. Consider the roll of medical insurance and Medicare in your retirement funding needs.

Return in the market.

This can vary a lot. Even long term rates can be different. Retirement calculators use rates between 5% and 12% to estimate growth of your portfolio. They both can be real, but won’t match your unique situation. Use a calculator that runs several scenarios. FIRECalc does this. Many others do. A Monte Carlo simulation is one type. A Monte Carlo simulation doesn’t perfectly simulate the market, but it gives you a general idea of the range of possibilities.


Inflation is an unknown. Many calculators assume about 3% inflation. Depending on how you estimate the inflation rate the real inflation could be closer to 4.5% over the decades of your retirement.


What to do about all this?

This just scratches the surface. Look at your situation. Use a retirement calculator that allows you to make adjustments to the assumed numbers. Then check several different calculators. You’ll start to see trends. If you compare that to something like the 4% rule then you’ll be able to get a general idea on how much you’ll need to save. Finally, be conservative. It’s better to overestimate a bit. But don’t over do it. Estimating a range based on each of these factors can give you a better idea of what you really need to have and how much you’ll actually spend.


What are some other problems with retirement calculators? How do you adapt to them?

Don’t Create a Budget Yet. Part 3 – OK Now Create It.

This is the third post in this series. The first post, Don’t Create a Budget Yet. Part 1 – Find Out Where It Goes., covered how to track what you’re currently spending. We did that so that we have a starting place to create a realistic budget. The second post, Don’t Create a Budget Yet. Part 2 – Figure Out What To Budget., talked about looking at the data so that it will be useful to you. Now we have the data to actually create your budget.


Step 1: Create a new table.

Create a new table. It’ll be similar to the last ones except now put the days along the top, put your new categories along the left side and then create a budget column.

Step 2: Fill in your goals.

Look at the categories that you created and the amounts you actually spent on each category. Develop a goal for each of those categories. Some, like rent, will be easy since they will be the same each month. Some, like eating out, may not be. Write down your budget goal in the new budget column next to the category. Do this for each of the categories that you created.

Step 3: Other categories.

Make sure you list some other categories as well. Specifically put a misc expenses category. Use how much you spent in the previous months to estimate this category. I usually try to estimate a little high for this one.

Step 4: Don’t forget saving.

Add a saving category. Even if all you don’t have any money left add a savings category. If you have a more comfortable income then add an investment category also. But the saving category isn’t negotiable.

Step 5: Adjust the numbers until they work.

Look at how much you make each month. Adjust them to meet your goals. Then adjust the numbers in your budget column until they add up to less than the amount you make in a month. This is where you really make your budget workable. It can be difficult. Try to balance how much you need to spend with how much you can afford to spend. Since you know how much you have been spending this part is easier. Make sure you put a little to savings. It may only be a dollar. That’s fine. But put something there. Once it all adds up you have your budget.

Step 6: Work it and refine.

Now with your budget set up track it just like you have before. The only difference is that as you spend money watch how it compares to your budgeted amount. If you find you’re getting close to the budgeted amount for the month reduce spending. Adjust if you need to for the following months.


Additional tips.

  1. You might find that you constantly are over spending in one item or that you’re constantly spending less. In this case you may need to refine your budget amount. Look at your budget to determine if it is realistic or if you’re just going over budget. Either way, you now have the information to make adjustments.
  2. Pay the important ones first. That dollar you put to savings in your budget, put that in at the beginning of the month so you’re less likely to spend it.
  3. Keep tracking your spending. I usually revise my budget categories and amounts each year. Tracking my spending helps me know how that needs to be adjusted.
  4. Don’t try to make big changes. If you find that one of your categories is completely out of whack make small manageable changes first. They will be easier to maintain. For example, if you find that you are eating out 5 days a week, don’t try to cut it to zero in the first month. Cut back a little at a time until you reach your goal. If you’re able to do better great.
  5. Budgets are rarely static for longer than a year. There is nothing wrong with adjusting as you go as long as you’re making it more accurate and working towards your goals.


What other tips do you have for people creating a budget? Any questions you have about creating your own workable budget?

Don’t Create a Budget Yet. Part 2 – Figure Out What To Budget.

This is the second of three posts getting you to a workable budget. The first post, Don’t Create a Budget Yet. Part 1 – Find Out Where It Goes., talked about tracking what you currently spend. This is important because it shows you how you spend your money. This leads to the next phase looking at all that data to figure out what you need to do.


Step 1: Review the data.

Look at the spreadsheets that you created. They show what you’ve actually been spending money on. If you followed Step 1 in the last post and agreed not to lie, then this will be a good place to build your budget from. Look over the data and see what you’ve been spending your money on. Are you spending it where you really want to spend it?

Step 2: Revise Your Categories.

Rewrite the information out in different ways. This part is up to you. Find out the best way to organize your data so that you can see what you need. For example, you may want to include a bunch of stuff like soap and paper towels, under household items. Or you may want to lump it together with groceries if you buy them all at the same place at the same time. If you aren’t concerned about your utilities you may want to group them. Or you may want to list them separately. The point is to organize the categories in a way that will be useful to you when you’re actually using your budget.

Step 3: Deal with the extra stuff.

You’re going to find that each month you had a few items that don’t really fit into any one particular category. I have a line item in my budget called Misc Expenses. Group your extra items under a category like that. This will help deal with the unexpected expenses each month.

Step 4: Look at the data again.

Summarize up the data into your categories and look at how much you spent on each of those categories each month that you were tracking your spending. Does that seem like a lot? Is it less than you expected? For most people it’s more than they expected. But this is your starting place for making your actual budget.


Now that you have your historical data and you have it grouped in a way that makes sense you can start on your actual budget. My next post will cover putting that budget together.


What are some things that you look at when you’re reviewing your spending?

Don’t Create a Budget Yet. Part 1 – Find Out Where It Goes.

Budgets can be an important part of money management. They can help you make sure that you have enough money to pay all your bills. Typically though when people try to create a budget they simply try to limit the amount they spend in a certain category. For example, when people create a budget they typically try to say that they’ll only spend so much on eating out. This is good, but in the beginning this might not be realistic. It might not even be helpful. If you want your budget to be successful you need to do a few thigs first. This is the first in a series of three posts that can get you to a budget. So here are 4 steps to do before you create your budget.


Step 1: Agree to not lie.

The first step is the easiest for some people and the hardest for others. For any budget to be successful you have to accept that everything will be tracked and that there are no “it doesn’t count” items. So you have to agree that when you create your budget you won’t lie about what you are doing. Then when you are following your budget you have to agree not to lie about what you are spending.

Step 2: Create a spreadsheet.

You don’t need to use Excel or anything fancy. All you really need is a piece of paper to track what you spend. Along the top put 1 through 31. Along the left side write down all the different types of things you spend money on: rent, groceries, eating out, clothes, gas, utilities, phone, and anything else that you spend money on in the month.

Step 3: Track your real spending.

Use the spreadsheet you created. Write down everything you spend money on over the course of the month. If you find that some of your spending doesn’t really fall into one of the categories that you already have then create new categories. This stage is all about recording what you are currently doing. It’s not about trying to make things fit.

Step 4: Track it again.

I recommend tracking your spending for three months in a row. It’s fine if you want to limit some spending in different areas. The point is to track what you actually spend. I recommend three months because you don’t always spend the exact same amount of money on the exact same things each month.


Now, this shows a true picture of what you spend your money on. We will use this to create your budget. First we’ll do a little analysis on what we’ve found. I’ll cover that in my next post. In the meantime write down the money that you’ve received. How much you actually received after taxes on your paycheck or any other money that you received during these months.

Let me know in the comments what else you need to know to track what you’re currently spending.