How many of you could give me a fairly accurate breakdown of your monthly income and expenditures? Do you have a decent idea of how much you make each month? What about how much you spend on utilities? Groceries and fun outings? Anything? You’d be surprised as to how many people I’ve met or talked to that have no idea at all about how much they make and spend. How is one to achieve financial freedom without knowing these things?

Arguably the first step in getting control of your finances is keeping tabs on it. Money is like baby-sitting a two year old. They both have a funny habit of getting out of control if you don’t keep a sharp eye on them. A couple of meals out a week, getting Starbucks twice a week, and buying a drink or five more than you were expecting and before you know it, you have no idea where your money went that month! Just like that.

Believe me; I know it’s not easy. Those receipts in your wallet build up and either have gum spit out in them or get thrown away in bulk. Logging in to your online banking or credit card account is overwhelming and you don’t really know where to start. So many transactions from so many places and they never seem to match up to the actual date that you bought it. What a hassle!

Deep breaths. Getting a hold of your expenses is hard yet really important. We’ll figure out a good way to do so. Before any talk at all about creating a budget, we’ll first figure out how we spend our money. I’ll offer two options for you go get started: a high tech and low tech option. Also, feel free to email me (youngmoneyfinance@yahoo.com) and I’ll totally help you out with any questions or difficulties!

High tech option: Mint.com or a system like it.

Mint.com and sites like it are great; they often are free, easy to use and have great tools to help you analyze your money. The format will be similar; you input your banking and credit card account info onto their site (fully secure) and they track it for you. Piece of cake. You can log in and view all sorts of info on how you are making and spending your money. There are features that will allow you to set goals and track your progress. A con is, however, the nagging sense that despite their guarantees of the utmost security (which I’m sure is super secure) that you are still giving away a lot of sensitive information. The bigger con, at least in my mind is that like a gym membership, signing and setting your account up won’t necessarily help your finances get better. You get out what you put in. It’s my fear that many of us will stop logging in at month two and we’ll be back to square one. It’s for this reason that I recommend option two: the low tech approach. 

Low tech option: Does your computer have the program Microsoft Excel installed? Do you have a Google account? If the answer is ‘no’ to the first two, do you have access to a pen and paper? Hopefully you answered ‘yes’ to at least one of these questions and if so, you’re all set with option two! Go into your program of choice and start a new document. Every couple of days (if not daily, but I do realize that people aren’t as gung-ho about personal finance as I am!) sit down and take ten minutes to fill in your expenses from the past couple of days. Log in to your credit/debit account to find them, or pull out all those receipts from your wallet/purse and record them! Record: the date that you spent the money, the place you spent it, and how much it was. Finally, try to break it down into one of the following categories: rent, utilities, groceries, insurance, cell phone, charity, gas, savings and fun/entertainment. By categorizing each expense you’ll be able at month end to get a feel of where you money is going. It is my belief that option two is more effective in helping you track your money, as it forces you to get in the habit of recording your expenses.

Do this for a whole month and then at month’s end, sum up each category. Compare this to your income to get a feel of the percentages that you’re spending. Rent shouldn’t be more than 30% of your monthly income. Unless you’ve gotten into major trouble with the law or drive a super expensive car (that’s a whole other discussion!), your car insurance shouldn’t be more than $150 each month. By sitting down and doing a little math, you’ll get a reality check with your money. Yikes, I spent how much on eating out last month? I spent how much on parking or on gas? These are real conversations that you need to be having with yourself.

Step one on the path towards financial freedom is tracking your money. I’ve outlined two approaches towards doing so, and I sincerely hope you do, at least for one month. Getting an idea of how you spend your money will allow you to set goals for yourself in the coming months. Set a goal for yourself to track (within reason) your expenses for a whole month. Start it July 1st and go thru the month. You can’t figure out where you’re going unless you know where you’ve been and where you are right now!

Hope you enjoyed the article! Please consider sharing with your friends. Also, here are some other articles you might be interested in:

Enjoying college on a budget

The right percentages

Nine financial things every new grad should know