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Why People Avoid Budgeting

Whenever I talk to friends or co-workers about budgeting, I always get the same responses:

“I’m not really good with money. There is no way I’d be able to budget.”

“I don’t have time to budget.”

“It seems like so much work to put together a budget.”

“You are a terrible conversationalist. Why are you talking about budgeting??” (I get this one a lot...I’m super fun at parties.)

Start Small: Tracking as the First Step

Budgeting, like everything else in life, can seem overwhelming until you break it down into mini-tasks. Start small. Start with tracking your expenses for a month. Tracking your spending is the first step in creating a budget. Before you can budget (or prioritize) your money, you need to know where your money has been going.

Two Methods to Track Your Spending

There are two ways to track your spending:

Track spending from the previous month using online bank statements
Track spending during the current month by saving receipts

Using Past Bank Statements

If you mostly use debit or credit cards to make your purchases, you can go back into your bank statements from the previous month and view your transactions. I like this method because I think it truly shows you what you spent when you thought no one was looking...like all of those Target impulse purchases.

Setting Up Your Spreadsheet

I prefer to use Excel or Google Sheets to track my spending rather than using paper and pencil. This way the computer can do the math and I don’t risk adding something up incorrectly. In your spreadsheet, the first column will be the date, the second column will be the payee (i.e., Target, Starbucks, Kroger, etc.), and the third column will be what you spent. You want to track EVERYTHING from your mortgage or rent, car payment, insurance all the way down to the $0.99 coffee you bought at the gas station.

Tracking with Receipts

If you primarily use cash to make your expenses, you will most likely need to track using the second method. People who use debit/credit cards can also use this method if they don’t want to spend an evening reviewing a month’s worth of bank statements. Similar to the method above, create a spreadsheet with three columns: date, payee, and amount spent. As you make purchases during the month, add the expense to your spreadsheet. I recommend getting a receipt for each purchase. You can save all of your receipts for a few days and add them to the spreadsheet at one time or take a few minutes at the end of each day to add your purchases from that day. Again, be sure to add big monthly bills like mortgage/rent, car payments, etc.

Choose the Right Month

As I said above, I prefer the first method because I think it shows what you truly spend in a month. And boy, it can be eye opening!

Regardless of which method you choose, be sure to track your spending in a normal month. Don’t choose a month when you make a lot of one-off purchases (like the month you purchase Christmas gifts) or a month where you took a trip. Choose a month with as many typical expenses as possible.

(For the true budget dorks out there, track your spending for a whole year - crazy, one-off expenses and all. You’ll be amazed to see where your money goes!)

Categorizing Your Expenses

After you have at least a month of tracking under your belt, come back to this post to learn how to categorize the expenses you just tracked.

You just spent a grueling month tracking everything you spent in a spreadsheet (or a grueling few hours scouring bank statements to track what you spent last month). Now it’s time to categorize your expenses. It’s up to you how many categories you have, but I recommend starting with a smaller, broad list.

Recommended Categories

For example, your categories could be the following:

Mortgage/Rent
Car payment
Utilities
Cell phone
Groceries
Dining out
Personal Care
Clothes
Medical/Dental
Miscellaneous/Fun money

Customizing for Your Lifestyle

Categories will change based on your situation. Only a few years ago, we had three old dogs and one who had his own cardiologist (yup...you read that correctly). We had A LOT of vet bills throughout the year...like enough to be a car payment. But, he was our baby and we love him. So, “Vet” was a category that got a lot of action in those years. We have one young puppy today and don’t spend nearly the same amount on vet bills!

If you have something specific you would like to track, you might want to add a category for that one thing. For example, I had always included bar and brewery trips into our dining out category. I wanted to see, though, how much we spent specifically on alcohol - when did we just go out for drinks versus when we went out for dinner and had a drink with our meal. I broke out “alcohol” from “dining out” and tracked any alcohol purchase (i.e., stopping at the grocery store to buy a six-pack or bottle of wine before going to a friend’s house or stopping at a brewery for Happy Hour after work).

The Category Column

After you write down your categories, add a fourth column to your spreadsheet for “Category.” Then go through each expense and assign it to a category. Don’t think too hard about it. If you’re not sure where something falls immediately, leave it blank and come back to it. After you begin categorizing, you might realize you need to adjust your categories (add a new one, combine two, etc.).

Analyzing Your Spending

Now that all of your expenses have been categorized, the real fun can begin! Ok - fun for a budget dork...a little nerve wracking and scary for a person who has never analyzed their spending before.

If you put your expenses in a spreadsheet, you can use that spreadsheet to do some very simple calculations to see how you’re spending your money. The simplest is to sort the spreadsheet by the category column, highlight the cells under the “amount” column and then look at the bottom of the page to see the total amount you spend in that category.

From Tracking to Budgeting

Now that you’ve tracked your expenses, you can build your first budget!

Track Your Spending