Taking the Next Step: Reader Question
Posted on August 25, 2007 10 Comments
Q: OK, so inspired by your admonition that we all make a budget I have written down everything I’ve spent for the last month. I’ll keep gathering that information but I sense that one month is enough to go on to the next step.
Here’s the catch, though, what’s the next step?
A: LOL! Good question! Here’s my take:
- Write down what you make in one month, after taxes. Save that.
- Now look at your records from last month. Based on what you spent, itemize all your necessary expenses (ie. monthly bills). Rent/mortgage, heating and water, cable, phone, car payments, loan payments, credit card payments for debt you’re trying to pay off, etc.
- Don’t forget food… write down what you spent on groceries on one line, and what you spent eating out on another line.
- Now, look at all the other stuff. You can probably lump it into these categories: health, entertainment, household, clothes, pet care, gifts, hobbies, charity, grooming/haircuts/hygiene, bank fees, transportation/gas. I’m imagining you might have more, but those are some of the categories I use. You’ll need a miscellaneous one, too.
- If you have a monthly savings plan or retirement, write that down, too.
I recommend using a software program to do this, like excel or MSN Money or the Neat Receipts Scanalizer. Does anyone know how to upload a spreadsheet for sharing? I can share mine if you tell me how
Now that you have everything written down … observe and analyze. Can you cut back your bills on any of your monthly bills (lower cable/internet, for instance, or a better phone plan)? Outside of monthly bills, What categories look too high? What categories look low (savings accounts? retirement, perhaps?)? What categories can get capped every month? The goal is to make your savings percentage grow, grow, grow!
When I did this, I noted that my eating out bill was disgusting, my “miscellaneous” column was enormous (what the hell was I buying???) and my clothing and gifts column was bloated. I didn’t have a savings column, and didn’t know how it was possible. That is, until I witnessed the train wreck that was my monthly spending pattern.
So I gave myself a target for what I could put in my savings column FIRST, and then I filled in caps for all the rest of the columns. I think when I first did this, I was limiting myself to $50 in gifts per month (I have a lot of friends and family), and to $100 per month in clothes and shoes.
So Kizz, now it’s your turn. What categories can you cut down on? Is your rent too high (experts say your rent should only be 30% of your salary… most people I know in Chicago pay too much for rent so they can live in “trendy” neighborhoods)? Are you splurging on bar tabs, restaurants, movies, etc. on the weekend? What would happen if you cut your entertainment expenses by 25%? Could you put that towards savings? How much can you realistically automatically put in a savings account each month? Challenge yourself to cut the fat!
OK, now I’m just turning myself into a cliche, so I’ll stop. (But seriously, if you think of it as a big puzzle to work out, it’s much more fun to do this stuff.)
But congratulations on taking the first step towards building your budget. I hope it was a truly eye-opening experience for you, as it was for me. If it wasn’t, well, at least you can now pass on the knowledge to your less-disciplined friends 
Good luck!
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PS- I tried to make this a video blog, because as you know, I think finances are boring, but it turns out the webcam on the new laptop doesn’t work, so you’re stuck with text for now. Sigh. If only I were better with the technology.
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10 Responses to “Taking the Next Step: Reader Question”
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August 25th, 2007 @ 2:12 pm
Wow that was quick, thanks! I’ll be working on this next step in the coming week, with this as a guide, maybe even in this weekend. I do know right off the bat that I won’t be able to cut down on rent because I’ve got a mortgage and I was lucky enough to have gotten a really good rate. But I’m sure other places will show room for improvement.
Thanks again!
August 25th, 2007 @ 3:17 pm
One way you can upload a picture of a spreadsheet (or anything else showing on your screen) is to do a Alt-PrintScreen (check by your number pad on the keyboard) and save the printscreen as a .jpg file. Then you can place it just like any other picture you upload to your blog.
Welcome back, too. Summer’s gone and it’s time to get the clean new notebooks out and get back in the grove!
August 25th, 2007 @ 11:30 pm
Very timely post! My most recent one was about how I’m late on rent because of a very bad shopping habit. =( I think I just lack self-discipline.
August 26th, 2007 @ 6:40 pm
About the tech part..you could use a regular digital camera and the video record function. Just a suggestion.
I personally pay everything using credit cards…it allows me to view exactly what I spent my money on every month!
~Raymond
http://www.moneybluebook.com
August 27th, 2007 @ 3:15 am
Well, I think the category that will always look like ‘you could have spent much less’ would be the entertainment one (it would include eating out). Every time I go out I have a feeling like ‘I’ve been worikng hard, I deserive to spend an evening in a nice place!’. Well, it’s the end of the month when the regrets come.
August 29th, 2007 @ 3:26 am
You can upload a spreadsheet (.csv or .xls files) in Google Documents and choose who you want to share it with. That’s how my roommates and I keep track of the bills!
September 8th, 2007 @ 1:01 am
I use an excel spreadsheet (Pear Budget) that Jonathon at http://www.mymoneyblog.com had linked on his website. Here’s the actual website where you can download the spreadsheet for free: http://www.pearbudget.com/
It may seem confusing at first but it’s fairly simple once you figure out how much you want to allocate to each category.
September 17th, 2007 @ 10:41 pm
I just found your blog and am really enjoying it! My fiancee and I are currently in the middle of trying to pay off all of our credit cards before the wedding, and some of your budgeting tips are awesome. I know you recommended Quicken or Money, but we’ve been using a really awesome program called Mvelopes. It helps us catch the unnecessary expenses before they happen, rather than after. I’ve been neglecting my blog for a while, but I wrote a Squidoo lens on it under his screenname:
Squidoo Mvelopes Lens
Thanks again, and an awesome blog!
January 4th, 2008 @ 1:31 pm
I use notepad to note all the expenses that i made on the date. I used to note every penny spend, typing in notepad and saving the .txt file is much more easy compared to sitting with a pen and notebook. It may sound nothing, but start doing you will find the difference.
What i do next is apply those figure in a classified manner in excel spreadsheet. I am just doing this for only 3 months and so i am not a master in it anyway i feel so comfort and pride doing this. And i cut so much nonsense spending as well.
October 13th, 2008 @ 8:06 pm
http://movingtoanapartment.com/money-and-finances/37-tools-you-need-to-successfully-manage-young-money.htm
This article has tons of online tools like the ones you mentioned for personal finances. I’m sure they’d be helpful too.