It’s Called Currency

When I first started trying to figure out how to create a budget, I was lost. I didn’t know how much I spent each month on pretty much anything, nor did I have any idea how much I shouldspend. The whole idea of trying to figure that out intimidated me to the extreme. As a matter of fact, I had several false starts with my budget. I’d put one together at the beginning of the month, figure out that I wasn’t meeting it at the end of the month, and decide it was hopeless and convince myself that I really didn’t need a budget anyway. I think I did this several times over the course of a couple of years. At that time, money wasn’t tight and I could afford to be reckless. Or so I thought.

Had I taken the time to learn—really learn—how to effectively budget in those days, I might not have ended up more than $30,000 in debt when my first husband and I split up. We went from rolling in money to rolling in debt in a matter of about 6 years. That’s what happens when you don’t watch where the money goes. You start to believe it will always be there, and when it isn’t, instead of changing your lifestyle, you buy into the debt trap.

So where does your money go? If you don’t know, start simply. Get a small notepad or a pack of index cards. Keep the pad or a couple of cards at hand in your purse, wallet or pocket. If you don’t already carry a pen or pencil out of habit, add one to the items you carry daily. Now you are armed with the tools needed to figure out where your money goes.

The process is as simple as the tools for it: write it down every time you spend money. Did you stop by Starbucks on your way into the office? Did you pick up breakfast for your study group? Did you buy a drink out of the soda machine? Did you drop $5 in the collection plate or give a co-worker 15 cents? Write it down, every time.

Recommendations vary on how long you need to write down every penny you spend. I’ve seen everything from a couple of weeks to a couple of months. You can decide for yourself how long it takes to understand where your money is going. It really doesn’t take long for you to realize where your spending habits are getting you in trouble. And once you start to see the patterns, you can start adjusting them to fit your financial goals.

Actually, this process also helps you to start defining your goals, in that you’ll realize what you don’t want to continue doing. As you eliminate spending, you’ll naturally start thinking about what you want to apply your saved funds to.

For some, simply writing everything down is enough analysis to jump start their budgeting process. Their brains immediately start connecting the dots and revealing the patterns. For others, they will want to create a list or spreadsheet where they can categorize everything and dig deep for insights. It’s truly a matter of personality as far as I’m concerned.

For a quick snapshot of a particular budget category, you can label an index card or sheet of your notepad with that category and, on it, list what you spend only in that area. Spending on entertainment, eating out and habitual purchases can be easily tracked and reviewed this way.

At this stage, you’re watching your financial waters run, discovering any side currents that may be detrimental and starting to find good locations for quiet pools of savings. Observing your own spending patterns can go very far in helping you to learn how to manage your cashflow in the future.

Tags: budgeting, cashflow management, education, priorities, saving // Add Comment »