It’s Called Currency

Now that you’ve tallied what you’ve got coming in, it’s time to look at what’s going out, but first, I want you to take out an index card or sticky note or just a small piece of paper. On it, I want you to write the total amount for what you think you spend each month. Set it aside for later.

Now, start with the monthly bills and identify your expenses in these categories (as outlined by Dave Ramsey):

• Housing (mortgage, rent, real estate taxes, homeowners/renters insurance, home repairs, etc.)
• Utilities (don’t forget trash pickup, phone, cable tv and internet expenses)
• Food (both at home and eating out)
• Transportation (car payment, fuel, oil, tires, repairs, auto insurance, tags, taxes, etc.)
• Clothing (for every member of the household plus dry cleaning, laundromat expenses, etc.)
• Medical/Health (health and disability insurance, medical bills, dental expenses, optometrist, prescriptions, etc.)
• Personal (life insurance, child care, baby sitter, toiletries and cosmetics, hair care, educational supplies and tuition, child support, alimony, subscriptions. organization dues, gifts—including Christmas, etc.)
• Blow Money (yes, literally, money that you blow)
• Recreation (entertainment and vacations)
• Debts (credit cards, gas cards, department store cards, lines of credit, personal loans, student loans, etc.)

These categories, taken in order, represent the priorities of spending. (Please note that saving for retirement or college is not an expense and will be covered on another day.)

By the time you’ve gone through each and every category, identifying what areas you currently spend in as well as those that need spending in the not-so-distant future, you’ve probably come to the realization that you spend a heck of a lot more each month than you thought you did. Go ahead, compare the real total with the one you wrote down to begin this exercise. Are you surprised? Upset? Angry? Afraid? After I added up all our household spending for the first time, I wanted to throw up. The number was way more than I thought it would be.

Take a breather. Remember, you didn’t get here in a day. It will take some time for you to move through the process of budgeting, learning what works and what doesn’t, what needs your focus and what can be set aside for another time. Personal finance is, after all, personal. Don’t beat yourself up. Instead, congratulate yourself for actually knuckling down and looking at the reality that is your financial life. Now that you can see the target, you can stop shooting blindly in the dark and fretting because you never seem to hit the target.

Tags: budgeting, cashflow management, education, priorities // 2 Comments »