Creating a budget, part 1- tracking expenses

A lot people try to create a monthly budget from scratch and are unsuccessful. In most cases the numbers don’t add up or don’t make sense. There are a few reasons to this, as most folks:

  • Underestimate or overestimate how much they make
  • Usually underestimate how much they spend
  • Don’t know where their money is going, thus forget spending categories

Have you heard the say “you have to learn to walk before you can run”? The same goes with budgeting. You have to “track” before you can “budget”. If you don’t know how much you make or where your money is going, there is no way you can create a budget.

A few years ago, when I started getting my own finances in order, I created a basic monthly tracking spreadsheet. I still use it today. It has columns for all my expenses such as housing, car, groceries, utilities, restaurants, personal care, education, health, debt repayment etc…

Each time I receive a bill or spend, I enter the amount in the applicable category.

There are tons of templates online and apps that can help you. Find one that works for you or create your own.

It might take a bit of time and organization at first. You will need to keep your receipts, bills and probably cross-check with your statements to make sure you didn’t forget anything.

When you have tracked your expenses for a month, you will notice they are divided in 2 categories: fixed and variable. Fixed expenses have the same amount each month. These include, for example, your mortgage/rent, insurances, and loan repayments. Variable expenses do not necessarily incur each month and their amount varies. Examples are groceries and restaurants, gas, personal care.

Once you are used to tracking, it will almost be second-nature. The easiest way to avoid being overwhelmed is to enter the expense the day it happens.

Tracking income will be reviewed in part 2.

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