The basis of a solid financial plan is good cash flow management. You need to be able to manage your spending so you do not hurt your long-term goals. While you're still working, if you spend more than you earn before retirement, you do not accumulate any savings. Once you retire, if you spend too much, you risk running out of money. Learning how to categorize and track how you spend money on a monthly basis is crucial for putting together a budget. Fortunately, this task isn't difficult if you plan correctly.
List all your expenses for one month. Look at your bill statements to find many of these costs. Other expenses, like food, do not have an exact bill, so you need to estimate these monthly costs yourself.
Use one credit or debit card to pay all your non-bill expenses for one month. Examine your end of the month statement to see exactly how much you are spending on these expenses.
Divide your monthly expenses between fixed costs and variable costs. Fixed costs need to be paid every month and cannot easily be reduced. Your mortgage payments, car payments and health insurance premiums are fixed costs. Variable costs offer some flexibility for payment. These include expenses such as food, home repair costs and vacations. It's much easier to make adjustments to your variable expenses than to your fixed expenses.
Prioritize your variable costs in terms of importance. For example, it's usually more important to repair your house or car than to pay for a vacation. Use the list of variable costs to find opportunities for saving.
Keep track of your monthly spending on a spreadsheet using a software program or a sheet of paper. List each type of expense and record how much you spend per month. This helps you identity areas in which you overspend.
Purchase or download budgeting software to help track your spending efficiently. Purchase software that you run on your computer, or use free online software. These programs are more advanced than basic spreadsheet programs for putting together a budget.