A Critical Look at Your Finances: A budget you can live with Part III

So, you’ve been tracking your spending for a month.  Now it’s time to get the first look at your finances and to examine closely what MoneyWalletyou have spent your money on compared to what you have received.   This can take a few hours, so make sure you set aside a good amount of time to complete this step.  If you have a spouse, this process is best done together, so that you will both be on  the same page with your spending.

First, you should carefully go through your income and total up what you brought in.  The best way to find this information is by  logging on to your bank account, or accounts, if you have more than one.  Be sure to pay close attention to this  number, because this amount is going to be the upper limit of your expenditures for the foreseeable future.

Next, take the records of your expenditures, and begin to categorize them (bonus points if you categorized them already while you were recording them)!  Typical monthly expenses for a family generally fall into the same categories, month after month.  For example, you will normally find recurring expenses in these categories every month:

·    Housing
·    Utilities
·    Insurance (auto, homeowner’s or renters, health, life)
·    Charitable Donations
·    Payments to credit cards
·    Transportation
·    Clothing
·    School expenses
·    Work expenses (lunches, transportation, union dues or professional certifications)
·    Medical expenses (prescriptions, co-payments, etc)
·    Food – groceries
·    Food – eating out (this includes those trips to the coffee shop)
·    Entertainment
·    Savings
·    Other

Of course, depending on what is important to you and your family, you may have used more or fewer categories in your spending.

Dividing your family’s spending into categories will help you to begin to consider making choices about which expenses are necessary or most important to you compared with those that can be easily cut out.  And once you have decided that, you may be able to make even deeper cuts.  Now that you have the big picture, it’s time to make some tough decisions.

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