Wallet Reality Check Time! Do You Really Know How Much You Spend? I Seriously Doubt It!
This article has been in the making for quite some time due to the fact that 90% of the families that I consult with have absolutely NO idea how much money they spend each month. This is a very dangerous way to live especially if you are paying interest on credit card and other debts.
If you have aspirations of getting out of debt and improving your financial situation, it is absolutely imperative that you understand your monthly spending habits. This is NOT something that you can guess at because it would surely lead to failure. So, we are going to help you systemize a tracking system for your spending over the next 90 days.
The reason we will be doing 90 days is that we need a descent sample size to estimate your average monthly spending. This is actually the easy part because all you will be doing is saving receipts and bills and putting them into folders which will be labeled with the following categories;
- Groceries / Household – receipts for groceries and household supplies
- Entertainment / Fun – receipts for going out, eating out, membership dues for health club, league fees, vacations, movies, etc…
- Gasoline / Auto Repair – receipts / bills for gasoline, gas station and convenient store stops, oil changes, and other auto repair
- Utilities / Cable / Phone – receipts / bills for water, electricity, sewer, natural gas, phone, cell phone, cable, internet, security system, cell accessories or equipment, etc…
- Home Furnishings & Repair – receipts for any furniture, electronics, home maintenance or repairs
- Clothing – receipts for any clothing or shoes
- Medical – receipts for any out of pocket medical related costs, co-pays, or prescriptions. This also includes dental and vision
- Debts – monthly statements for all interest bearing debts including mortgages, car loan and lease, student loans, credit card debt, etc…
- Insurance – monthly statements for auto insurance, homeowners insurance, flood insurance if applicable, health insurance if not pay roll deducted, and life insurance if not payroll deducted
- Kids Activities – receipts / bills for day care, school lunches, sports, clubs, extracurricular activities
These 10 categories will each represent a file folder. If you don’t already have a file cabinet you can either buy an accordion style file box for under $20 and it will make this process easier and cleaner. Once you have your file folders simply label each one with a category from above.
Then, for the next 90 days you will save all your receipts and your monthly bills and file them in the appropriate category. At the end of 90 days you will simply add up the receipts or bills paid in each category and divide by 3 to get your monthly average for each category. If you’re like me, you’ll also buy individual file folders to go inside each category and organize things one step further but that isn’t necessary.
This is actually the easy part and it will show you, without a doubt, where your hard earned money is going. Once this is established, you can start working towards reducing your spending on a category by category basis, which is much easier than tackling the whole beast at once.
I have a unique strategy for cutting your spending for each of the categories referenced above and we’ll dive in head first once you complete this 90 day exercise. If for some reason you think this is too hard, or just a silly waste of your time, I’d like for you to consider the following.
My average client can find an additional $400 to $800 per month in savings once they complete this simple exercise. That’s at least $4,800 per year which would surely help fund a college fund or retirement account, or pay for a kick ass family vacation!
So don’t be lazy and just do it as it could change your current financial circumstances in the next three months! This is basically the foundation to your financial security.