Have you heard the phrase "A place for everything and everything in its place"? Well, I'm adapting that for this post to "A name for every dollar and every dollar goes to its name". Doesn't have quite the same ring to it but oh well.
When your money comes in on payday, do you have a plan for how it will be dispersed? I'm not talking about a nitty gritty detailed budget, not quite yet. I'm talking big picture plan. Are you aware of what your bills and expenses are, what your debt payments are, how much you actually spend each pay period on eating out, gas, groceries, etc? Let me tell ya, we had no clue. A couple years ago, I decided to print out our bank statements for the past three months and just see what our expenses were adding up to. It was partly appalling and mostly educational. Money spent on eating out was crazy bonkers, meanwhile we apparently spent very little time at the grocery store and lots of time (or at least dollars) at the gas pump. It was a learning experience. We got to know our finances. "Hi, nice to meet you, finances." Do you know your finances or do you need to introduce yourself to them?
Here is the first step to gaining control over your money and managing it like a BOSS: give a name to every single dollar you spend. Ok, not every single dollar, that would get really redundant, but every category of dollars. Make a list. For real, open up a Word document or Google doc...or there's this thing called a piece of paper... This list will be the starting point for your awesome budget later.
Here are the names of some of our dollars:
Trent UAS Student Loan
Trent ACS Student Loan
Anna AES Student Loan
Trent Health Insurance
Trent Car Payment
Cable & Interwebs
Trent Misc Spending
Anna Misc Spending
What would you add to your own list that you don't see here? Be specific! If you spend money on it, put it on there, even if it is a small category. Do you go to lots of movies? Do you buy lots of clothing? Do you have frequent doctor visits? Do you spend money on craft project supplies? I can't make this list for you. Nobody can but you. At this point, this is not yet about what you should or should not spend money on or what you could maybe cut back on. That comes a bit later. For now, this is just a list of what you spend money on right now.
Ok, have you made your list?
Now comes a step that is not quite as easy: putting dollar amounts with these categories. This is not hard for spending categories that are the same amount or close to the same amount each time they roll around, like house or rent payment, cell phone, student loan payments. These are no brainers. But what about things like eating out and groceries? If you really have no clue how much you spend on these (it's ok, I've been there too), I would suggest doing what I did and print out a couple months worth of bank statements, turn on some tunes, grab some highlighters and start categorizing. Go through and mark all the grocery trips one color, the restaurants another, gas another. Add in whatever other categories you have on your list. Then just sum up each category to get an idea of your spending habits. Try to pick months that would be pretty indicative of your regular spending. For instance, if I had picked a March bank statement, then coffee and eating out would be majorly overstated because March is in the middle of me working tax season hours. Meanwhile, gas would be understated because the only place I go then is the office. If you do have flukey seasons of life like I have tax seasons, that does need to be accounted for but again, baby steps here, our budget and timeline will take care of that later.
So you have made your personalized list of spending categories and summed up your dollars that go with those categories. Now step back and see what you think about it. Are you appalled by how much you are spending on a certain category? Are you super proud of yourself for actually being economical in another, unbeknownst to you? I can't tell you what you should or should not spend money on, what expenses need some self control and what expenses you are rocking at. That is all up to you, your priorities and your goals. Give this some thought. Are you wanting to tackle some debt? Maybe less money needs to go to eating out and more to extra debt principal payments.
We'll deal with the detailed number crunching soon. For now, give every dollar a name and spend some time thinking about how many dollars are going to each of those names. Keep your list, we'll need it later.