Imagine you were planning a trip from Chicago to New York. Your trip would be pretty simple and you would have a lot of options. You could drive, take a train, fly, hitchhike, or even ride a bike. It is a short trip and easy to lay out on a map. The budgeting process is very similar to going on a trip. In budgeting, if your goals are short term and easy to navigate, your budgeting process will be easy and you will have a lot of options too. However, if you are traveling from the middle of nowhere Nebraska (i.e. you are very poor) and you want to go to Tokyo Japan (very rich and very far away), you will need a more deliberate, well planned path. You can go East, you can go West, you can go by land, air and/or water. There are many choices and the choices you make are right for you but may not be right for someone else. Maybe you are scared of flying, so you would take a boat. In any case, you need to know where you are, where you want to go, and how much money you need to get there. You are going to run into obstacles along the way and need to deal with them. Long story short, if you are lazy and are not committed to this (and a little excited), you will be spending a long time in your current place.
How Do I Get Started Budgeting
The first step in any budget process is to understand your expenses. An expense is when money goes out the door. It may be as obvious as that Starbucks latte that you are drinking or it may be less obvious like the taxes that are coming out of your paycheck.
The best way to uncover all of your expenses is to track them. Today, I am going to give you three ways you can track your budget – two on paper and one electronic. If you mostly spend cash on your purchases, you will want to use one of the paper methods. However, If you swipe a card for most of your purchases and pay your bills with paper or online checks, you can use the electronic method (which is much easier.) I recommend that in either case, you start with one of the paper methods. There is just something about writing it down that makes it sink in. Just like how your high school math teacher made you work out the equations on paper rather than letting you use a calculator.
Two Ways To Track Your Expenses via Paper
- Paper Method # 1: Carry a notebook – One of the easiest ways to lose weight is to log everything you eat. The same goes for saving money. When you have to feel the pain of using money, they act of writing down each purchases can deter you from buying that super delicious Starbucks Chocolate Chunk Cookie (my Kryptonite). Get a pocket notebook – I like the Moleskin ones and a pen. Every time you make a purchase, write it down. You can also use a checkbook register to accomplish the same thing. Record what you bought and how much you paid. Record it when you are standing in line to make or receive your purchase.
- Paper Method #2: Take a picture – In the olden days, I would tell you to simply pocket all of your receipts and put them in box for later recording. However, after the Seinfeld episode where George had a 2 inch wallet full of receipts, I don’t want to be sued for your back pain. So, I recommend that if you have a smart phone you take a picture. You can use just the camera app on your phone or use something like Evernote to add all the expenses to a notebook. The nice thing about Evernote is that you can add pictures, notes, and voice recordings all in one note. Keep your notes separated by Day. I use this method on my business trips. I have to keep all my receipts to submit them for reimbursement. Each time I take a picture, I email it to myself. This keeps me from losing my receipt.
If you are using one of the two paper methods above, you want to take that information once a week and log it on paper or in an Excel sheet (Google docs will work too). Just create a worksheet with four columns – Date, Purchase, Amount, and Category. Once you have your expenses gathered, you are going to categorize them. The free class on Udemy that I am developing will have more information on categories. Once you have your expenses tracked and listed in categories, you are going to look at how much money you spend in each category. At minimum, you will want to track your expenses for 5 weeks. Start today as there is no reason to wait for the first of the month. (No excuses – get to it).
How To Track Your Expenses Electronically
Long term, you should move toward tracking your expenses electronically. This will automate the process and allow you to keep an eye on your expenses throughout the month.
- Electronic Method – The best way to track your expenses electronically is to use Mint.com or similar site. Mint.com was a start-up that was purchased by the makers of quicken. It allows you to enter your financial account information and it will download all of your transactions from your financial institutions. You will need to enter your user name and password for your financial accounts. The sites use the latest security and exchange secure tokens with your financial institution that allows them to download the data on your behalf. I have been using this site securely for the last 3 years. If you truly have concerns about handing your information over to Mint, you can download Quicken. This will allow you to download your financial transactions to your computer and then import them into the computer program. It is an extra step and a little more secure (as long as you don’t lose your laptop). With that said, I still recommend using Mint.
Once you sign up for your account in Mint, you need to enter in all of your accounts. You should enter in your bank accounts, investment accounts (401ks too), credit cards, store credit cards, and any other way that you can spend money. Once you enter that information in, you can start downloading your transactions. Once your transactions are downloaded (It will download 3 months’ worth of transactions), take time to categorize your transactions. This will also teach the program how to categorize your future transactions. Once you have that set up, you can go to Trends page and look at how much you spend by category. This short cut will allow you to record your expenses and analyze them to quickly start your budgeting.
Gathering your expenses is the most time-consuming part of the process but also the most valuable part of putting together your expenses.
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