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Plan Well, Retire Well

Saving and investing your money

Budgeting and Tracking Expenses: Give It a Try

Budgeting. Tracking expenses. Sounds about as exciting as doing laundry. But I track expenses and do a budget because they give me the data to answer tough questions and make good financial decisions, such as:

  • Could we survive on one income if my husband or I got laid off?
  • If we put new flooring and counter tops in the kitchen, where will the money come from?
  • How much did it cost me to drive my nine-year-old car last year?
  • How much of our income is unaccounted for? In other words, I do not know where it went?
  • How much did we save last year?

It's always good to have a budget, to know how much you spend and bring in. But there are times in your life when it's more important than others. Anytime you go through a major life change, your expenses or your income (or both) are going to change. If one of these life events has happened to you recently – or if you think it might happen in the near future – this is a good time to get serious about keeping track of where your money goes:

  • Marriage or divorce
  • Having a child
  • A child starting college
  • Moving
  • Changing jobs
  • Retiring
  • Caring for an elderly parent
  • Deciding that you will get your finances on track

There are lots of different ways to go about tracking your expenses. In my opinion, the most important thing is that you do it, not what tool you use. Here are some ideas.

  • Save all your receipts and paid bills. Collect them in an envelope or box. Write the category at the top of the receipt (i.e, food, entertainment, gas). Once a week, add up the expenses in each category.
  • Carry a small notebook in your pocket or purse and write down everything you spend. Tally it up once a week.
  • Use a checkbook register; draw extra columns in it so that you have a column for each major spending category. Give yourself a budget for the week or month in the first line. Then record and subtract each expense to keep a running total of how much you have left in each category.
  • Use an online program or software on your computer to download transactions from your checking account and credit cards. Manually enter expenses paid by cash. Categorize your expenses. Generate an expense report and let the program do the math for you.

You might try one method and decide it just doesn't work for you. That's OK. Maybe you can adapt it so it works better for you. Switch to another technique. Or try one method for cash expenses and another for things you pay by debit or credit card. You may not track your expenses forever, but doing it for a few months will give you a good sense of what's going on. When another life event strikes, you can do it again.

There's an old saying that knowledge is power. Knowing where your money goes can give you the power to reach your goals and to change your habits. It's definitely worth a try.

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