I have conversations on a daily basis about money, spending habits, and having a budget. It is one of those constant battles we face that we never really want to address. Money is an emotional thing that we feel is easier to put off until a later date - until it’s too late.
Through all of these conversations I have around money, the one constant I see is this - a lack of awareness. How much money are you spending each month? Some people have a pretty good idea, others have no idea at all.
Understanding the fact that budgeting isn’t taught in school, I recognize the uphill battle we all face when monitoring spending. After all, most people make some of life’s biggest financial decisions while they are still in high school! That’s when the first car is being purchased (with thousands of dollars of debt to follow them into college), and when decisions on where to go to college are made (with potentially hundreds of thousands of dollars of debt to follow them into their working career). We often make uninformed decisions today and face the consequences for years to come.
There is one thing we can do to start budgeting our money, and that is to become aware. Awareness is the first step in budgeting, because without knowing where we are today, we don’t know where we need to improve.
How do you become more aware of your spending? Some people will turn to online budgeting tools to pull in their data and give them a clean looking report or pie chart.
The best way to become more aware of your spending is to track it yourself. Since the vast majority of our spending these days is done by debit or credit card, you have the records easily accessible. You can pull up your most recent card statements and a spreadsheet to get started. On the spreadsheet, simply type out each transaction listed, along with the date and dollar amount.
Now that you have gone through your recent spending history, take a minute to review the transactions. You don’t need to be hard on yourself, but just be aware. Do you remember each of those purchases? How do they make you feel?
If you are new to budgeting and want to make this a real habit, I suggest you continue this awareness practice on a weekly basis to start. Set a specific day and time on your calendar to make this 5-10 minute exercise a consistent event. Over time, you can gradually turn this into a monthly or quarterly practice. Are you married or have a significant other? They should be involved in this process as well. Couples need to be on the same page of understanding where the household spending is going.
After you have gone through this awareness exercise enough times to feel confident in where your money is going each month, you can then begin to craft your budget parameters. This is when you can start to make great strides in managing your household finances, but you need to be aware of your current spending before you can improve in the future.