In order to start off on the right foot, the first thing everyone should do is to take a look at their current spending habits and figure out exactly where the money is going. This is probably the hardest step to take because tracking your spending habits can be somewhat tedious. The exercise here is not to nickel and dime. We’re not counting calories here and trying to get on a spending diet. The goal is to identify just where your money is going on a month to month basis.
Luckily there are many tools available to us that will help us track our expenses and revenues. One such popular tool that works with your existing banking accounts is Mint. Mint is extremely powerful in that it will allow you to categorize all your spending into different buckets. It will also provides fancy charts to show you what categories consumes the most of your money. To top it off you can track your spending real time by downloading the appropriate app for your phone and entering your expenditures as they occur. The only downside to Mint is that you need to share your banking information. If you are sensitive to sharing your information with a third party company, then fortunately there are other solutions that will help.
Another alternative that can be used to track all your spending is to make your purchases using a credit card. This is a route that I am most familiar with as my credit card provider helps me by breaking down all my costs into different categories. My current credit card provider, CIBC, has a great personal budgeting tool that shows all my expenses broken out into different categories. The only additional information that this won’t track are the cash expenses that you may incur during the month. This method of tracking is only good if you are already in the habit of making the majority of your purchases using a credit card. More importantly this method should only be considered if you keep your credit card balance at $0 at the end of every month. Consider looking at your bank and seeing if an online tool already exists as this may serve to be a very good option.
Those that are somewhat tech savvy and really good spreadsheet users might try budgeting on Microsoft Excel or Google Spreadsheets. It may take more work to get it going, but once you have a good template it’s as easy as just punching in the numbers. Similar to Mint, you can easily enter in everything you spend on the spot using the appropriate app on your phone when you make your purchases A great budgeting spreadsheet can be found on the moneyunder30.com website. Despite the name of the website you don’t need to be under 30 to start looking after your finances.
Once you’ve started your personal budget, it is always good to go back and review it. What changes should be made? Are there things that don’t make sense? Do I need more help managing my money?
I’ll explore into greater detail what some of the above tools will let you do and what you should do that will help you achieve financial independence.