How to Start Reducing Your Deb, Part Two
Mend the Holes in Your Pockets
How many times have you taken out $50 at the ATM machine, only to discover a day later that you’ve spent it allbut you don’t remember where? Most people have a rough idea of how they spend most of their paycheck, on things like the mortgage or rent, the car payment, and other bills. But they lose track of where all the rest of the money goes.
To get a clear picture of where and how you use your money, you must write down every penny you spend. For the next month, that is exactly what you will do. I’ll admit, this is a pretty tedious exercise. The first time I tried it, it took four separate attempts before I actually followed through for a whole month. I tried it again recently after a change in my financial status, and again, it took two months before I actually stayed with it for a month.
There are several ways to keep track of your spending. If you have a computer at home, you can use a personal finance program like Quicken, which allows you to create charts and graphs that show you how you are using your money. Just be sure you enter every pennynot just what you spent with checks and credit cards.
If you don’t have a computer or don’t want to use it, you have a couple of other options. One is to get an accountant’s notebook that has seven to ten columns across the top. Across these columns list your basic budget categories. For many people, these broad categories will be:
1. Home: rent or mortgage, utilities (phone, electric, heat), home maintenance costs, gardening, and upkeep
2. Food: food you eat at home or during work hours. Dining out in the evening should probably be included under “entertainment” or maybe “business.”
3. Transportation: subway or bus fares, car payments, car insurance, taxes and tags, gasoline, parking, tolls, and maintenance
4. Medical expenses: doctor bills, dentist bills, prescription medications, eyeglasses, contact lenses and solutions, health club memberships
5. Clothing and personal care: all clothing purchases, including pantyhose, shoes, and jewelry; cosmetics, shampoo, toiletries, and haircuts
6. Entertainment/Recreation: movies, videotape rentals, sports fees, music lessons, dining out, vacations
7. Loan payments: credit cards, personal lines of credit, or other loans, except the mortgage and car loan
8. Miscellaneous or other categories: You can create your own categories, or just have a “catch-all” category for anything that doesn’t fit above.
These eight basic categories should cover most expenses, but you may find there are other categories you want to add. The idea is just to get a basic idea of your spending patterns.
Now, for the next month, keep track of every penny you spend. If you decide to record your expenses in an accountant’s notebook, you may find it necessary to carry a tiny notebook in your wallet or purse so you can record purchases as you make them.
