When money gets tight, the first thing to do is start figuring out how much money you spend and what you are spending it on. To figure out how much money you spend, write down everything you buy and add up the total. Then, after you have documented your spending for a few weeks, you can begin to analyzing how much you are spending and what you are spending it on.
The hope is that you will be able to make decisions to reduce or eliminate expenses that are no longer necessary without having to lowering your standard of living. Keeping track of your purchases will allow you to find and eliminate these expenses before you get into a situation where you have to drastically reduce your standard of living. You will probably find that between 10% and 25% of your spending is unnecessary.
How to Track your Expences
To get started, you will need to keep a recipe for each purchase or keep a ledger with you and write down this information as you make each purchase. Most people have a hard time sticking to it for more than a few days, but you really need an entire month to get a good understanding of your entire financial outlook and to project your future financial outlook.
If you do stick with it, the understanding you gain will allow you to control your spending so that you can buy the things you need and a few of the things you want while planning for your future.
First thing first, take a notebook add write down as many bills as you can think of. Ask your family members to brain storm with you to get an estimate of what you total household expenses are for one month. You can also quickly estimate how much money you will have left by subtracting your total expenses from you total income. If the difference is negative, then you need to consider reducing or eliminating a few expenses.
Improve Your Efficiency
At first, you will probably spend about two to six hours a week documenting your expenses. But, you will soon get faster and after a few months will have it down to fifteen minutes a week. When you first start, I suggest updating your notebook every day – otherwise you can quickly get overwhelmed with too many numbers. After two weeks, you can move to twice a week and eventually once a week.
To reduce your time updating your notebook from daily to weekly, I suggest creating a file system. Create one file for weekly recites/notes and another for the entire year of recites/notes. During the week, just drop recites/notes into the weekly file. At the end of the week, go through the weekly file recites/notes and update your expense notebook and move the recites to the file for the entire year. At the end of the year, you will have a complete expense history and a file for of all the recites/notes.
A Budget will be Easy
With this information, you could easily create a yearly budget for the next year and even project how much money you will be able to save during the following year.
Here is an easy tool for creating a budget, Free Budgeting Tool.