It is still early in the month and the beginning of the year, now is a great time to start tracking your expenses. You don’t need to do this for the rest of your life, although you may want to once you start. Commit to tracking everything you spend for a month or two. This is a good first step whether you want to create a budget, get spending under control, or figure out the size of your emergency fund. There are numerous ways to track spending ranging from an old notebook and paper to modern iPhone apps. I like to use a google doc.
There is a key difference between tracking as you go and tracking after the fact. If you have a sense that you are currently living within you means, a post-mortem analysis is a great option, and arguably easier than if you track on a day by day basis. However, if you are spending beyond your means and really need to reign in your spending, a day by day record is really the way to go. Nothing helps put an end to mindless spending more than having to write everything down.
This exercise helps you to identify all the different line-items in your life: weekday lunch, parking, morning coffee, groceries, gym, and so on. This information can then be used to determine a monthly budget, and whether your money is actually going where you would like it to go.
Try this for a month or two and see what you discover. Is it easier to pass on a morning muffin if you have to write it down in your log? Are you shocked to see how much you spend eating out each month? Having an itemized list of monthly spending is the initial stepping stone in analyzing your spending habits, curbing spending, creating a monthly budget, increasing savings, and creating an emergency fund.
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Day 1: Know Your Monthly Income
Day 3: Calculate Your Net Worth
