One of the most basic things to start doing is tracking your expenses (I just download statements from my credit card, checking account, and savings account, and put them into Excel.)
While doing that, I went and looked for a budget. But budgets suck! You never follow them for very long because they feel so constraining and they’re annoying, too. Fortunately, I ran across the 60% solution, which I use as a reverse budget.
By a reverse budget, I mean that after every month, I go over my expenses (like I said, big spreadsheet in Excel) and categorize everything. Then I look and see if my percentages fit the 60% solution, and if so, I’m golden. If not, I figure out what areas I’m spending more in, and work on doing better for the new month.
So, by now you’re wondering what exactly the 60% solution is (assuming you haven’t followed the link to it). Basically, you assign 60% of your monthly income to the things you must pay (taxes, rent/mortgage, insurance, utilities, etc). The remaining 40% is divided into 4 categories of 10%:
- “Irregular” Expenses (unexpected, usually critical, very irregular stuff: accidents, repairs, major medical, etc. Since they won’t repeat, I also lump big entertainment and household purchases into this category.)
- Paying Down Debt / Long Term Savings (If you’ve got debt, you should be paying way more than the minimum payments, but I’ll talk about that later.)
- Retirement (yes, really!)
- Regular Fun Money (Amazing! I’d never seen a “budget”-ish thing that said it was Ok to still have fun!)
The first month I did it, the previous month was already pretty close to these numbers. Talk about positive feedback; I didn’t even know about the system during that month, and I was almost following it!
It’s not only helped me to keep track of where I’m spending too much money, but it’s also made me feel a lot more in control. And that’s a good feeling to have.