Part Two of the Financial Preparedness Series

Do you track your spending? This is the step everyone overlooks and it leads to failure. A good recipe will make or break your cupcakes, or budget. Not all recipes are created equal, and some just have a lot of extra stuff that you just don’t need – fat for instance. Granted this is part of what makes cupcakes taste so good, but its also what makes them not so good for you.

The same principle applies to your spending. So step one is to track your spending and where your money HAS been or IS going, or as we are calling it, identify your ingredients.

Browse through cookbooks and recipes

There are two ways to do this.

1) If you keep ALL you receipts then sit down and categorize all your spending and income from the PAST three months.

2) Track all of your spending and income for the NEXT three months.

3) Or a combination of both

The spending tracking system that best worked for me is the good ol’ pen and paper. Keeping tabs on my spending in an app like Mint and the likes was not that great as smart devices are jam-packed with distractions. So, keep a small notebook and a pen nearby whenever you go shopping and write down every single spending, including:

• The Date
• The Sum
• The Item/ Service you shelled the money for
• The Location (Yes, the store is important too as you can later have a clearer view of the amount of money you spend there every month and on whether you would be better off shopping for some items elsewhere)

At the end of the month, centralize all this data into a spreadsheet. I recommend using a spreadsheet on the computer because you can easily compare your spending side by side and breaking down into into categories (more on that in a bit).

Plus spreadsheet apps usually have a built-in calculator. For Excel, use the formula =SUM(cell#,cell#) to add (example =SUM(H7,H8)) or to add a column =SUM(cell#;cell#) (example =SUM(H7;H13)). We’ve included a template for excel to help get you started, just use your good friends “copy” and “paste” to add categories.

Download our Track Your Spending Worksheet

After three months, you’re ready to build a realistic budget. You could start from Month 1, but expect some setbacks.

Before you start, mental preparation is also a must as it will give you the motivation to power through your financial detox which starts with spending tracking. Dave Ramsey is a good start, and so is Tony Robbins. Two books that were true eyeopener for me at the beginning of my journey were “The Compound Effect” by Darren Hardy and “Your Money or Your Life” by Vikki Robin and Joe Dominiguez. Imagine these as your cookbooks, and the sound advice in them as good recipes that won’t make you waste the ingredients.

And if you’re not a bookworm like myself, get financial advice from an expert. There are countless non-profits out there that offer financial counseling for free.

Analyze the ingredients

Any of the above methods will work as long as you do the following steps to determine the best recipe and any changes that you need to make for the best cupcake money can make.

• Track EVERY PENNY – it doesn’t matter if its cash, credit, debit. If you spend it you write it down and assign it a category.
• Get down to the nitty gritty – you can’t make a low fat cupcake if you don’t identify where your calories are coming from. Don’t just assign things by store (Winco = grocery for example). Itemize your receipt and be HONEST. Junk food, hygiene, household, diapers, etc. This is important because until you realize how much you’re spending on things you don’t need (or that aren’t good for you) you won’t have the motivation to change your recipe. Think of this like reading the label on a package of cookies at the store, they don’t look so good when you discover that 400 calories is just 1 lousy cookie.
• Define each category – this will keep you accountable and avoid facing the truth. My husband always laughs when I say that cake is health because it has flour (grain), eggs (protein), and milk in it. It you don’t have it defined it will just end up in miscellaneous and won’t get cut or recognized for its unhealthy ingredients.
• Write it down – you’re going to want to total every category and compare them each month. This is how we develop our final cupcake recipe and discover those hidden ingredients that make our cupcakes so sugar and fat filled.
• Use Color coding to help identify where you went in the hole, used your credit card, how you paid for things, and your final totals.

Why Tracking Spending Is So Important

Keeping track of every single penny seems like a lot of work, doesn’t it? But it does pay mega dividends. Here’s several reasons you should be starting tracking where your money goes right now:

• You cannot build a realistic budget without a proper expense tracking mechanism set in place. This is the number one reason budgets fail. People have unrealistic expectations about their expenditure behaviors when setting up a budget and life happens. Expense tracking, broken down into categories, offers you an accurate picture of your spending. From there you can build a sensible budget with flexible categories that will help you reach your financial goals as naturally as it can be. For instance, without expenditure tracking, you don’t really know how much money goes into your “Wellness” category. By having a bigger picture of how much money you burn on your wellness such as those bi-weekly visits to the saloon or spa or that stack of dietary supplements you just had to buy because they were on sale, will help you trim this category where you are supposed to.
• A spending tracking system helps you better differentiate between needs and wants. Is that Double Chocolaty Chip Crème Frappuccino really necessary to buy every single day? Do you really need it or just want it? Truth is that this simple move sets you back $5 every workday, $100 every month, and more than $1,000 per year. Think about what you could do with all that money. I surely wouldn’t mind someone writing a $1,000 check for me on my birthday. The same goes for ordering takeout instead of cooking dinner from scratch, eating out instead of bringing lunch to the office, and splurging on taxis or ride sharing when you could’ve used public transit.
• Tracking your expenses will help you take back control of your life. This is a big one. Yes, knowing where your money goes down to the last penny, being mindful about your spending, and having a plan to get out of financial rut come with a sense of empowerment very few things in life offer. The Truth will set you free, and knowing the truth about how you spend your life energy (yes, money is a form of life energy) will liberate you of your money-related fears and sense of hopelessness. You’ll be sleeping better at night, that’s a promise.
• Expenditure tracking helps you become more mindful every time you reach down your hand in your pocket. Do I really need to buy this or am I trying to boost my self-esteem, structure time, relieve boredom or restlessness, or trying to impress my coworkers? Over-spenders manage to sink into the depths of spending addiction because they’re not mindful about the ultimate reason they make an expense. 
• And last but not least, keeping tabs on your spending helps you reach your long term financial goals faster. Do you plan on becoming credit card debt-free? Have you been sighing at those island and cruise adventure flyers for years? Does your kid’s college fund needs some immediate TLC as it has been neglected lately? These are just some of the long-term financial goals you could reach by tracking your spending and sticking to a realistic budget as a result.

A Little Encouragement: 

Here’s where I get to play cooking show host and pull out the finished product (or in this case step). I’ve been working on this step for the last couple months and just finished my own analysis in preparation of creating my own perfect cupcake recipe.

I’ll admit the first month was the most painful. The truth hurts! But as I continued to track my spending and was more aware of how much I spent in some areas I was really surprised to see how just that knowledge alone helped lower my spending. And when you can literally see those results it’s a great feeling and very encouraging.

Here is a list of the categories (along with their definitions) that I came up with for my family.

• Income – any money that comes our way – cash, gift, paycheck, odd job, sale of something
• Tithing – 10% of our income we pay to the Lord and he takes care of the other 90%
• Fast Offerings – we fast once a month and pay a generous fast offering to help others in need
• Fees and Overdrafts – any bank incurred fee or overdraft transfer made to our account and its corresponding fee
• Transfers – all money transferred between accounts
• Gas
• Grocery – all good healthy food (labeled for WIC, cash, credit card, debit, etc)
• Junk food – extras – donuts, ice cream, candy, etc
• Eating out – dates, take out, on the road
• Household – cleaning supplies, stamps, hygiene products, toilet paper, etc (non edibles), I have diapers under this category, but I will be adding them as a category with the new baby coming and in future tracking.
• Miscellaneous – doesn’t fit anywhere and therefore expendable
• Gifts – anything bought as a gift and any corresponding shipping costs
• Clothes
• Recreation – any family or date. Includes housing, travel, food, all costs in relation to that activity
• Medical – doctor visits, medicine, lab fees
• House – home repair, furniture, yard or maintenance
• Entertainment
  • -Books
  • -Movies – rental or purchase
  • -Craft – sewing, knitting, craft supplies, etc
• Work – anything related to work
• Car – maintenance and repairs
• Car Insurance
• Rent / House Payment
• Credit Cards – payments
• Life Insurance
• Electric
• Phone
• Internet
• Cable or satellite

There are a few things that I discovered through my ingredient tracking. I hope this gives you a little encouragement:

1) I was losing $15 a month in bank fees just to bank there (love that!)

2) I could save about $30 a month if I didn’t feed my donut addiction

3) Even though our large family does not eat out often, between date night and lazy nights, this one expense added up to a third of my grocery budget

4) Gift giving will get you! Scale down for Christmas and go small for birthdays and weddings

5) My husband spends more on clothes than me and the kids combined. Funny!

6) If I cut movies and book buying it would leave a good chunk of money free for other things.

Keep in mind that these categories are not set in stone. Feel free to customize the list based on your lifestyle and needs and be as specific as you can. For instance, “Grocery” can be broken down into absolutely must-haves and things that you could have lived without like that block of expensive artisan cheese or bottle of French wine.

Don’t get me wrong. It is alright to splurge from time to time as you don’t want built-up frustration to blow up your budget and long term financial goals into pieces, but you need to keep the tabs on these extra expenses and cut down on them if there are any exaggerations. 

If your family uses two vehicles or more, break down the costs for each vehicle under the Car and Car Insurance categories. At the end of the month, ask yourself if the extra means of transportation is really worth it. Is it necessary, convenient, or you just need it to show your status or to fit in?

If social pressure is the number one reason for the extra expenses with the additional vehicle(s), consider changing the people you regularly hang out with. Also, ask yourself if commuting or public transportation wouldn’t be better to save hundreds if not thousands of dollars per year. “Transportation” is a big and flexible category where you could see important savings. 

Analyze each category and see where you could cut corners without frustrating you and your family exaggeratedly. As a financial guru once said, “Budgets, just like diets, won’t work.” He was obviously referring to pre-made budgets that have nothing to do with your personal wants and needs.

The secret to sticking to a budget is being mindful about where your money goes down to every single dime, and allowing yourself some room to breathe by splurging on things you really like from time to time. This way, hitting your financial targets become second nature. The hardest part is the start and the honesty it implies.

This should get you started on your own ingredient list, and create an eye opening experience. Please comment any other “ingredients” that could be added to the list here on this page. You can also download this Simple Monthly Budget  to get started. Of course share your encouragement and discoveries with others in our comments or through our Facebook page.

Other posts in the Financial Preparedness Series – Get Financially Prepared – Identify Your Spending – Assess needs vs wants – Create a budget – Saving Money – Counting Cupcakes & Financial Preparedness

These books by Dave Ramsey have been crucial in helping our family get out of debt. See them on Amazon:

   

This post was first published on Jan. 9, 2013 and last updated in June 2020.