Step One to Budgeting: Know Your Current Spending Habits

Maybe you keep telling yourself that you should start to budget your money but you just don’t know where to start. Or maybe you once stuck really firmly to a budget, and now you’ve probably gotten a little lax about it. Either way, the first step to budgeting your money is to know how much you are currently spending on everything. Once you understand how much you are spending, you can come up with goals on how to spend less.

First, choose a time period that you will be watching your spending habits. Make sure in total that you calculate spending for at least a month, to account for all of your bills. If you get a paycheck every two weeks, you might want to divide that month by each set of two weeks.

There are a few different ways of calculating how much you are spending and what you are spending it on. The old-fashioned way is to keep a notebook with you every time you shop. After buying something, jot down the amount, the store and the item or category of items that you have purchased. Another way is to record is to save all of your receipts in an envelope that you carry with you. Be diligent and record everything that you buy, down to the tiniest purchases.

At the end of the time allotted, organize your purchases into categories that make sense for you. Some of our categories are home, personal care, car maintenance, groceries, phone bill, entertainment, etc. It is important to have separate categories for standard expenses and more unnecessary expenses. For instance, groceries and fast food purchases should be in separate categories.

Once you have completed organizing your expenses, you can easily see which categories you can cut back in. You might be surprised to notice how much you have spent in certain areas. Once you have done this for at least a month you can start a budget. However, it does make sense to continue to track your spending for a little longer to get an even better idea of what your average spending habits are from month to month.