This past weekend was the first weekend of the month, and like all first weekends this past year I was in front of  my computer reading through a pile of receipts, tracking my expenses (unless I had something better to do then I would do it the following weekend).  About this time last year my wife and I realized that we had a problem.  While we were not accruing any more debt and we were making all of our payments, we didn’t know where our money was going.  It seemed like we had less disposable income than we thought we should of had once we added up all of our financial obligations (mortgage, groceries, internet, etc.).  We wanted to pay into our mortgage more aggressively and save thousands on interest, but the money we should have had to do that was obviously being spent in other places.  Instead of getting ahead of ourselves and creating a budget, we put a bowl on the counter and started tracking where our money was going. Why Track? Why Not Just Do a Budget? Initially we did create a budget, but we quickly realized we were just guessing and we couldn’t stick to our budget.  This  problem is common to many tasks where optimization is the end goal.  The first step to optimizing is measuring what  you have.  There is a saying in my industry that goes, “You can’t save what you can’t measure.”  We say this when we  install energy meters into buildings because they are expensive, but they tell you when you are using too much energy so you can work to fix it.  Otherwise you are just guessing. So in a long winded way, the first step is to gather as much information as possible and then analyze it. Once you have a  clear understanding of where your dollars are going you can then take action and create a monthly budget to control your money flows. Give it Your Full Effort As with all information gathering exercises, the only good information is detailed and complete information.  Large  gaps in expenses will only leave you with more questions and ultimately a budget that will not be as useful as it could be. You don’t have to track every single expense.  Target a 90% expense tracking total.  It will give you good results while being flexible enough for you to have the odd slip-up.  I do  miss the odd receipt here and there, but these are typically under $10 so they don’t have a large effect.  Make absolutely certain that these odd slip-ups are not actually regular small purchases like coffee or lunch. Office coffee runs and lunches are typically under $10, but they add up in a hurry.  Also, to be sure you include all of the large purchases are captured. To encourage the tracking I advocate that you get a receipt bowl, and locate it in a place that you pass frequently in your home.  I personally like placing it right next to where I put my keys and wallet.  When I come home I place all of the receipts in the bowl and forget about them until the end of the month.  My wife prefers to keep an envelope in her purse, in which she will put all of the receipts inside of.  Find something that will keep you consistent. When it comes time to record all of the purchases, I prefer doing it at the end of the month.  I used to do it every day as the expense occurred, and then it was every week, and eventually once a month.  It only takes me about an hour to do, and it is pretty brainless, so I can listen to some music as I do  it.  Not a bad chore for a Sunday morning.  It is better than doing the dishes. “Excel-erate” Your Tracking I was trying to go for a pun here, but I don’t think it is working… I happen to live with an Excel guru so our spreadsheet is pretty fancy, but anything that sums up the totals at the end of the month will do.  Make sure you have all of the appropriate categories of your regular expenses and be sure to include your monthly income sources as well.  If you are not confident in your computer skills a notebook and pen will serve  the same purpose.  It will be a little more work but it will get the job done. As an example our expense categories include: Restaurant, Gifts, House, Fitness, Utilities, Health, Miscellaneous, and Recreation.  We have found this to cover most of our regular expenses.  We don’t own a car but I imagine many people would like to add a “Car” category or maybe even a “Kids”. (Just in-case you wanted to see if it actually costs $200,000 to raise one). Your tracking should also incorporate how you and your partner are set up financially.  Does everything come out of one account, or are your accounts separate?  My spreadsheet has three “spenders”. Me, my wife, and our joint account.  This allows us to see who [...]