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?