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.

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