How to track spending

Many people run into a problem when they try to work within a budget; they don't know where their money goes.

I confess, I keep a running total in my head of how much money is in my bank account. My coworkers call me Pam 2.0 and seem to think I'm more machine than human. I suspect that most people are not like me.

If you don't have a calculator in your head, the simple solution is to balance a checkbook using receipts. This creates a lot of paper to keep up with though.

If keeping up with receipts and balancing your checkbook at the end of the day is not going to happen. I suggest taking advantage of online banking. Almost every bank offers free online access and you can see what is available almost immediately. With the exception of actual checks written of course. (Sorry, it's the old fashioned way for those!)

It is better to use a debit card when trying to save money because you have some method of tracking spending. Cash tends to end up in some black hole leaving a lot of people wondering what happened to that 20 in their pocket.

When trying to save money, this tallying up after all purchases might make things more difficult. Before making a purchase, do a mental check to see if it's within your preset budget. Usually if you have some reservation, it's not worth buying. (or it's a major purchase and you should hold off until your reservations are taken care of.)

How to save money

1. Do not finance anything unless you have to. (education is one of the few things that I think it's better to finance than not have.)

2. Stop wasting finite resources! Change the temp in the house when you are leaving for the day so you don't waste electricty/gas. turn off lights/appliances when not in the room

3. When running errands, make a list of all the places you need to go and get everything done in one trip rather than wasting gas going back and forth.

4. Clip coupons if you take the Sunday paper.

5. Take your lunch rather than buying it. Same goes for snacks.

6. Cut extras on phone service and cable.

7. Rate shop insurance often.

8. When possible buy clothes that do not need to be dry cleaned.

9. Wash full loads of clothing rather than partial.

10. Rent movies from the library

11. Check out books from the library instead of buying. If you are the type person that must buy, buy from Amazon and get enough from each seller to reduce shipping costs.

12. Put money you save in a high yield savings account. Many online accounts are earning 5%. Keep putting the money in there until you have enough to delve into higher yield accounts.

Budget

The first step becoming financially healthy is to create a budget. You don't need any fancy software to create a budget, in fact, I recommend putting everything in a basic excel spreadsheet. Odds are good that if you are able to read this blog, you have excel. No need to throw money in a new program.

Creating the budget:

1. Gather all income information for a month. Typically paycheck stubs.

2. Gather bills for at least the last month, and back six months if possible.

Once you have all bills, add them to an excel file. For things like food and electricity that vary by month, average them. If you don't have old bills or an accounting of some expenses, estimate them for now and start tracking them.

Don't forget misc. things like birthdays and other gift giving occassions, build in some cushion to cover these things.

After the budget has been worked out, you will be able to see how much is available each month to save for pay off debt. It is always a good idea to build a small nest egg before putting all extra cash toward paying off bills. The standard six months worth of expense money in savings works well for most people.

With the nest egg safely tucked away for a rainy day, start putting the "left over" money toward paying off debt. One of two methods should be used to start. Either put all extra money toward the account with the lowest balance, or put all money on the account with the highest interest rate.

Paying off an account quickly can give someone a sense of accomplishment and the emotional fortitude to proceed. Paying down the account with the highest interest rate will save more in the long run. In the end, the course of action depends on your needs at the moment.

Good luck!