The second step is to document
what you are spending. This basically consists of categorizing your expenses and
accounting for every check that you write and even the cash that you spend. I like to use
a computer program such as Quicken for this purpose. After a year of diligently entering
each check into Quicken we decided to do a report on our categories. It was quite
revealing. One of our categories was "Eating Out", it was a shock for us to see
how much money we had spent over that year on "Eating Out", this awareness
enabled us to make a change, and this change greatly effected our monthly bottom line.
Without keeping track, making that change would have been much more difficult.
Documenting
what you spend and what you spend it on can be scary and revealing. It can tell you a
great deal about yourself, your spouse and your family. It can tell you things about how
warm or cool you like your house, how late you stay up, how much laundry you do, whether
you like to cook or not, how much you like to talk to your Parents, how generous you are,
and on and on. This is a very important activity because it will help you understand what
your financial priorities are in practice and with this understanding you can adjust your
practical financial reality to your theoretical, progressive, mission furthering,
priorities that you determined in the last activity that we suggested here. You
shouldn’t beat yourself up about what you discover during this process. It will
definitely be a temptation. You will have to keep reminding yourself that you are taking
the steps necessary to take control of your financial reality.
As you discover that you could have paid for your car outright with the money you spent
eating at McDonalds over the last year, you will have to recite the "Mantra",
"I am taking control of my financial reality, I am taking control of my financial
reality, I am taking control of my……."
One of the first things you will need to do in the effort to document your spending is
to determine some meaningful categories for your spending. You don’t want the
categories to be too granular and you don’t want them to be too general, you need to
find the balance that will be meaningful to your and your situation. For instance, you can
have a category for "Eating Out". If, however, you have a habit of going out to
lunch with your friends at work, you may want to have a separate or sub-category for that.
If you were to take it to the extreme of tracking how much you spent on eating out for
each person in you will most likely end up being overwhelmed by the process of keeping
those records not to mention the amount of information that you will end up with.
Your categories should include income as well as expenses. You should track the same
categories that you budget. You should track your variable expenses, such as telephone,
electricity, natural gas and fuel for your vehicles separately, because tracking where you
are in these can help you get control of them. These variable expenses are where you can
grab a little extra for paying down your debts or adding to a savings account.
Because of where you are reading this article I will assume that you have or have
access to a computer. A computer can be a valuable tool in documenting what you spend.
There are many commercial and shareware programs for Windows or Mac computers to
facilitate this process. I have used Quicken for years, it is a very mature and well
thought out application. It helps facilitate paying bills on-line, doing my taxes, and
budgeting. It has very powerful and easy to use reporting tools. The reporting
capabilities are important because having a meaningful view of the information is as
important as, if not more important than, gathering the information in the first place.
Microsoft Money is another program that is very popular. As I indicated there are many
shareware and freeware products available for download as well. You can go to sites like www.download.com, www.hotfiles.com, www.shareware.com, and simply search
for personal finance software. Here are some links to some popular and highly rated
shareware/freeware programs:
The trick in accomplishing this step in taking control of your family’s finances
is to:
- Decide to do it
- Find the tools you need to facilitate it
- Set aside the time to faithfully follow through with gathering, documenting and
analyzing the information
- Act on the information in a way that will move you down the road you and your family has
chosen toward your financial goals.
Good luck, and remember, "you are taking control, you are taking control, you
are…….."
Tune in next time for step three, Making a Plan.
