Do you have an income issue or a spending issue?

When coming up with your financial plan, remember there are two sides of the equation: your income and your expenses. We need to look at both of these.

The first thing you need to do is look at your spending.You will have a very difficult time getting ahead if you don’t know where your money goes. Don’t let your money control you; you need to control it.

Now is a good time to look at your spending since we are at the end of August and we have an entire recent month worth of spending to look at. How did you spend money this month?  Checking account? Credit cards? Taking cash out of savings? If you do all of your spending with a debit card and/or credit card, this will be a lot easier to do. If you spend cash, then you’ll need to start this process tomorrow. If using cash, you’ll need to get a small notebook or keep your cash in an envelope and write down everything you spend money on as you spend it for a month. We need to know where the money goes. After you do that for a month, your assignment looks a lot like the card spenders.

Pull your credit card and bank statements for August. You need all your spending from August 1 to August 31. Look at each transaction and put it into a category:

Housing
Rent/First Mortgage
Second Mortgage
Housing Repairs/Condo Fees

Utilities
Electricity
Gas/Oil
Water
Cable/Internet
Phone
Cell Phone
Trash

Food
Groceries
Eating Out

Transportation
Car Payment 1
Car Payment 2
Gasoline
Auto Repairs
Car Insurance

Clothing

Medical/Health
Health Insurance
Medical Copays

Personal
Life Insurance
Disability Insurance
Child Care

Entertainment/Recreation

Donations

Debt (List each debt separately)

Other (See if there are any categories that pop out at you within this “Other” umbrella)

Once you get all this down on paper, look at what your spending. Is there fat in your spending? Are you spending more than 15% of your take home income on food? Do you spend a lot on recreation? Take a look at all your spending. What jumps out at you?

If you are already on a program, what were the items that jumped out at you when you first looked at your spending? For me, I think it was how much we spent eating out. We never spent a lot on groceries but we had times when we’d eat out three days in a row. Cutting that out was huge. It probably saves us $150 a month.

Tomorrow, the income issue.

Please note: I reserve the right to delete comments that are offensive or off-topic.