Starting on the 1st of the very next month begin keeping every single receipt for a purchase you make. If you make a purchase that does not have a receipt, write it down on a piece of scrap paper. Put all of your receipts and scrap papers in an envelope. Keep collecting these for the entirety of the month.
It is vitally important that you do not make any changes in your spending habits during this time. Trust me, you will want to know what is coming on the back end of this exercise. Honesty is the key here. Just be honest and learn from the process. At the end of the thirty days sharpen your pencil, get a calculator, and a sheet of paper, and sit down to begin the journey.
Categorizing your spending to see where your money is going
You want to categorize all of your spending into some basic categories. Do not get too granular at this stage as it will likely derail the process. Simply categorize your spending into some basic categories such as housing, utilities, food, clothing, transportation, medical, personal care, entertainment, and miscellaneous.
Create a pile for each category by separating the receipts into each. Once that is completed write the name of each category on a piece of paper in a list. Next, calculate each pile using your calculator and write the total next to the category on your paper. Finally, calculate all of your category expenses to get a total of your expenses for the past month.
The SocietalGlitch Personal Finance Workbook has a dedicated Expense Assessment sheet in which you can enter your expenses under our predefined categories and automatically calculate your expenses for the month. You can even add an estimated income amount and the sheet will show you how much of your income goes to each category. Pretty nifty!
You may learn that you are paying way more than you would like in a particular category. You may also learn, like us, that entertainment (alcohol) is where a lot of your money is going and not serving you well. No matter what you learn, you have taken the first few steps toward managing your finances. Congratulations!
Keep the momentum going. Start Module 2 now!