For many their New Year’s resolution each year is to get out of debt. And most have been making it year after year after year. Maybe it is time to keep that resolution! If you want to get your spending on track the first thing you need to do is figure out where your money is going. I know it is not fun, but you need to write down all of your spending for at least the next 90 days. Every dime of cash spent needs to be tracked – whether it is a soda from the vending machine or a stop at the local fast food place. You need to create a spreadsheet of categories. This can be an Excel spreadsheet. It can be a computer software program such as Quicken or Microsoft Money. It can be a notebook with blank pages. The more specific the categories, the more information you will have later to determine your spending habits.
Take that list of cash spent and put it into the appropriate categories. Add the expenses you paid by check and by credit card. Be careful when doing this because some of your receipts may contain multiple categories. Say you went to the local superstore and bought groceries, pet supplies, and household items. You need to list them in separate categories. Once you have done this for 90 days then you need to factor in expenses that occur regularly, but not within the time frame you tracked. For example, Christmas and vacation expenses need to be considered. You need to adjust for school expenses, insurance payments, birthdays and other items that occur each year. You can then calculate your expenses on an annual basis.
Compare this with your income and you will see where you stand. If your income is higher than your expenses, that is great. If your expenses are higher than your income, something needs to change.
If you look at your annual expenses you may be shocked at what you are spending on what is affectionately called piddlycrap. Is that coffee, bottled water or soda number more than $1000 per year, more than $2000 year? How about the cost of text messaging on your cell phone or downloading tunes on your iPod? What are you spending eating out? What is Christmas really costing you? What are you spending on clothes that you end up giving away two years later, sometimes with the tags still on them? What about books, movies, sporting events, magazines, Happy Hour, bowling night? Where is your money going?
We all have piddlycrap. That is not to say that you need to get rid of it all. Life has to have some fun in it. But you need to pick and choose. Maybe you give up that latte every other day or buy the latte, but stop buying the muffin or bagel. Maybe you brown bag your lunch twice a week. Maybe you agree to only one new article of clothing a month. Maybe you decide to buy the generic version instead of the store brand. Stop the subscriptions to the magazines and newspaper that you never quite get to read. Consider a night in with friends and rent a movie rather than meeting everyone for dinner and a movie out.
It is not unusual for individuals to have a third or more of their spending going to piddlycrap. Think about what you could do if you just took $100 or $200 a month of that spending and redirected it. How much quicker would debt get paid off if you added $200 to your monthly payment? How much sooner would you be able to retire if you added $200 a month to your monthly retirement contribution?
Do not try to give up everything. You will feel restricted and constrained. Eventually you will say the heck with it and go back to your old ways. Change one or two things at a time. Give it six or eight weeks and then re-evaluate. Change another spending habit. It takes time and it takes effort. Go at it on your own if you can. Team up with a friend and work on it together. Bring your kids and spouse on board.
