Due to some pressing issues here on the homefront, I will be running a few guest posts this week. This is a post from Peter who writes for Bible Money Matters, a blog about personal finance and faith. You can subscribe to his RSS feed here or via email here.
I’ve been writing about personal finance for just over a year now, and in that time I’ve come to a lot of realizations about our finances, how to do a budget, and how to improve our financial situation. When I look back, however, I think there was one crucial point that really turned things around for us. That was when we decided to actually track our monthly spending. It was truly an eye opener. Up until that point we hadn’t been doing too bad, but there were months where we paid all our bills, and then didn’t have anything left over to save, invest or give. It was frustrating to be working so hard, yet feel like we were just treading water.
When I started blogging about personal finance, I decided that we should be paying closer attention to our finances. What was our income, and what were our fixed expenses? Figuring out our income side of the equation was easy, but our expenses were a bit more hazy.
Tracking Our Spending
That next month we tracked our monthly spending down to the penny. We decided to use a budgeting software to track every expenditure, which would also allow us to print out some nice reports so that we could visualize exactly were the money was going. At that time we used Microsoft Money almost exclusively. It was easy to use, and allowed us to update our accounts via online connections with our banks. We didn’t rely on just the online updating, however, we double checked everything so that nothing slipped through the cracks. When we finally sat down at the end of the month and looked at our spending, we had already broken all of our spending down into categories in Microsoft Money. There were two kinds of expenses in our budget:
- Fixed Expenses: This includes things like housing, transportation, utilities and insurance (health/auto/life). These expenses are pretty much the same every month, and have to be paid.
- Variable Expenses: This category was for expenses that varied from month to month. Things in this category included food expenses (groceries, dining out, snacks), miscellaneous spending money, gifts, leisure expenses.
The fixed expenses were pretty much set, and there wasn’t really anything we could do about reducing those bills. We just have to pay them. The variable expenses, however, are a bit more flexible. We found there were a LOT of areas that we could cut. We were overspending by huge amounts several categories.
Cutting The Fat
After all the number had been crunched, and expenses tallied we found that there were two main categories we were overspending in. The first category that we had gone overboard in was in the “dining out” category. Neither my wife or I really enjoy cooking very much, and because of that we end up eating out a lot. Too much in fact. We found that simply by cutting the number of times we were eating out every week we could cut our monthly expenses by $400-500. That’s a lot of money!
We also found that we were probably spending too much on gifts for friends and family. We have pretty large families, and a good amount of friends, and it seems like most months we are buying gifts for someone’s birthday, anniversary or other occasion. We decided that we needed to cut down in that area too, and instead of buying expensive gifts, we would buy more inexpensive gifts, and possibly make some of our own gifts to give.
Continuous Tracking
After that first month of tracking our spending, we were able to change our spending habits dramatically, save a ton of money simply by cooking more meals at home. We’ve also started being more creative about our gift giving. The result is that we are saving hundreds of dollars every month. We haven’t completely stopped going out to eat, or giving gifts, but we’ve reined it in, and made our spending more in line with our financial plan, and the goals that we’d like to achieve.
Tracking our spending isn’t something that we did just once. We continue tracking our spending every month, making sure that we aren’t getting back to our old spending habits. It happens, trust me. You start making a bit more money, and things start drifting back to the old ways. Having that once a month family budget meeting is helping us to keep our financial lives centered, and to keep each other accountable.
Have you tried tracking your monthly spending, and did you find some things that surprised you? What process did you use to track your finances? Tell us about it in the comments!
photo credit: SOCIALisBETTER