Very few people actually live on a budget. Most of the time they just go day to day hoping for the best. With high levels of credit card debt and record numbers of bankruptcies, it’s clear more of us would benefit from telling our money where to go rather than watching it run away!
Where Does It All Go?
One of the best steps you can take to begin a budget is to track your expenses on a Spending Diary for 30 days. I remember visiting with one of the first couples I counseled. As I reviewed their budget, I noticed that they showed $400 in meals out for the whole year. Guessing that wasn’t quite right, I asked a few questions. How often did they go out? “Weekly” was the answer. Where did they go? “Out for pizza,” they said. Did the whole family go? “Yes,” they replied. How much was the tab? “About $30,” they told me. You can do the math. While the family thought they were spending $400 per year on meals out, they were actually spending more than $1,500. That’s a difference of $1,100 for just one category. Just imagine if they had other categories off by as much. Their budget wouldn’t be much of a plan, would it?
The purpose of the 30-day spending diary is to help you understand where your money is going. If you faithfully complete it, by the time you get done, you’ll have a wealth of information about your spending patterns that will help you create an initial budget. To keep your Spending Diary, you’ll need to record every purchase you make on a daily basis. Here are the steps you need to take.
A Valuable Habit
The first (and most important) step is to make sure you have a record of everything you spend money on. When you write a check to pay a regular bill, for example, your mortgage or utilities, save your copy of the bill as the receipt. For cash, debit card, or credit card purchases, you’ll need to save the receipt from the store. That means getting a receipt for every purchase, even for a pack of gum. This may be a new behavior for you, but it will become a valuable habit very quickly. If you are unable to get a receipt for a purchase, you’ll need to make one yourself. Write down the amount and what it was for on a small scrap of paper or back of a business card if you have to.
You’ll place the receipts for each week in a separate envelope. So get four envelopes and mark them week one through week four. You’ll want to keep them all in one place (a drawer or small box works well).
At the end of each week, grab a cup of coffee, tea or lemonade, and sit down to record your receipts on the Spending Diary. Your Spending Diary should have columns under the following headings: Date, Payment Type (cash, check, debit or credit card, bill pay) and Description. This last one requires you to sort the spending into categories. The categories you may want to consider using include:
• Giving
• Education
• Savings
• Housing
• Groceries
• Transportation
• Medical and Dental
• Insurance
• Debt Payments
• Clothing
• Entertainment and Recreation
• Work-related
• Miscellaneous
Completing your Spending Diary is really very simple. Take out the appropriate week’s envelope of receipts and fill out the date of the purchase, how you paid for it (cash, check, debit or credit card, bill pay), and note a brief description of “what” you purchased. Examples could be a cup of coffee, lunch, groceries, etc. Then place the amount of the purchase under the most applicable spending category.
Most category choices will be obvious, but here are a few suggestions for those that may not be quite so clear:
• lattes, meals out and cable TV all go to Entertainment and Recreation;
• haircuts, cosmetics, dry-cleaning and pet expenses all go to Miscellaneous.
From Spending Diary to Budget
Repeat this same process for weeks two through four until you have 30 days of spending history. This important information will be used when you create your first budget. Don’t wait more than a week to record your expenses, otherwise the receipts will stack up and you’ll feel overwhelmed. You may even want to record them daily.
If you are married, the spouse who has the greater eye for detail should be the one who handles the actual recording of the receipts in the Spending Diary. Just because one spouse handles the financial details doesn’t let the other spouse off the hook! Both of you have to diligently save all of your receipts and plan on getting together each week to review your updated Spending Diary.
Once you’ve completed your Spending Diary for 30 days, you can multiply each of the category totals by 12 and you’ll have an estimate of your annual spending for each category for the year. It’s important to realize that some expenses don’t occur evenly through the year. Make sure to factor in these irregular expenses as well when creating your budget.
I appreciated the following advice from Rev. Celestine Strub, in his book The Christian Home:
Keeping a home and a family is just as much a business as running a store; so why should it not be kept on a business basis? Many couples have had their eyes opened by keeping an itemized account of disbursements. They found that they had been extravagant without realizing it. But if keeping tab on one’s expenses teaches economy, it should be done in every Christian home; for economy, supernaturalized, is nothing but the Christian virtue of moderation.
By completing your Spending Diary, you’ll accomplish two things. First, you’ll be getting practice at tracking your spending. Second, you’ll probably find yourself surprised at where your money is going. Both of these are key building blocks as you begin the process of developing a financial plan.
God love you!
Phil Lenahan is President of Veritas Financial Ministries. If you have questions you would like Phil to address, please email them to [email protected]. You can also up for the free Veritas Financial Ministries E-Letter at www.veritasfinancialministries.
