How to Know Where Your Money Goes

You can't escape paying for food, housing, taxes, health care, utilities, basic clothing and transportation.  Where does the rest of the money go?  Here's how to find the drains on your spending that leave you broke all the time.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• paper and pen
• a highlighter

1. The first week, just write down every expense including coffee at the office, tips, and even money put in parking meters. Have everyone in the household do this.
2. At the end of the first week, take a highlighter and mark the items that were choices, not necessities. These is where your discretionary income is going.
3. To identify what is a chosen expense, analyze each expenditure. When you put money in the parking meter, could you have parked for free further away? When you had latte at Starbucks, could you have less expensive coffee in the office break room?
4. If your goal is to balance your budget, retire early or put your child through college, you have some decisions to make. Is it more important to have a latte every morning at Starbucks or to retire early? Is it more important to get new earrings or to retire early? Is it more important to rent a movie or to retire early?
5. Once you decide what is really important in your life (long term goal or immediate gratification), then you'll start aligning your spending accordingly.
6. Each week, repeat step 1 (writing down every expense). It takes 21 days to break a habit. The habit you're trying to break is mindless spending. After 3 or 4 weeks of recording, analyzing, and trying to cut back on expenses, you will be much more mindful when you reach for your wallet to pay for small expenses. Those small expenses add up to a big drain on your budget.