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How to Track Your Spending

Earlier this month we tackled how to build a budget. For those of you who tried a budget for the first time, how has it been going? Budgeting is a skill that can take a while to perfect, so if you feel like you way overspent in one category while underspending in another, don't get discouraged - just look at the month of data you now have, and move forward with greater clarity in the months to come!

Once you have a budget (the amount you're planning to spend in each category, as well as amounts you'd like to give away, save, or invest), you need to figure out a system for tracking it (since that's the key to following it!). The good news is that there are many ways to do this, and almost certainly one that will be a good fit for you! I'm going to run down a few of my favorites today, but would love to hear from y'all in the comments.

A custom Google Doc | This is the system I use, and warning: it might seem a little insane on first glance. But if you use very little cash, don't mind a little upkeep, and LOVE data, it might be the right fit for you! The basic premise is that the amount in your budget accrues each day, which is a neat way of feeling like your budget is growing, not shrinking!

The envelope system | Dave Ramsey fans will be very familiar with this one! It's perfect for people who are worried about overspending, because almost everything is paid for in cash, and once the cash in each category's envelope is gone, it's gone. You can read more about this strategy on the Dave Ramsey site, and read about our friend Nancy Ray's envelope system experience here.

The EveryDollar app | EveryDollar is an online budget app created by the Dave Ramsey team and is basically a digital version of the envelope system. I haven't used it personally, but my sister is a recent convert who is loving it, and our Marketing Director Amber also uses it (see her PowerSheets above)! The app is free for 15 days then $99 for a year.

You Need a Budget | Another online budget app with rave reviews is You Need a Budget, or YNAB. I love that not only do they have a great tool for tracking your spending, but it's guided by a strong personal finance philosophy based on four rules (give every dollar a job, embrace your true expenses, roll with the punches, and age your money). YNAB is free for 34 days, then $50 for a year.

Mint.com | Mint promises to bring everything from budgeting to bills together - your financial life, in one place that's easy to understand. Mint has been around for awhile, and seems to be the most polarizing of the sites I've listed here - people either love it or hate it. When I used it for a few months, I felt like I was going in more often than I'd like to correct its auto-categorization. Mint is free.

I'd love to hear: Have you found a system of expense tracking that works for you? What do you use?

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How to Build a Budget

Personal finance goals and questions come up so often in the PowerSheets Facebook Group that Jess and I thought it was high time we added a bit of this content into the blog schedule! And, lucky me, I'm the one who gets to write to you about it! (No, really: lucky me. I am extremely passionate about financial freedom, both in my own life and helping to equip others, so there is almost nothing else I'd rather write about!) To start, I thought I'd share a little bit about how to build a budget.

I have followed a written budget for eleven years now, and I can confidently say that it is the number one reason I feel at peace with my finances. I don’t worry about whether or not we’ll have enough money to pay our mortgage or insurance bill every month; I know we will. The headspace this surety frees up allows me to focus on my dreams and keeps me on track to reach my lifetime financial goals. There are few things better than that!

If the word budget sounds scary, shake off that fear and listen to this: a budget is not about denying yourself and cutting out everything fun, it's about making a plan. Dave Ramsey likes to say that budgeting is “telling your money where to go.” I like that image. A budget helps me be purposeful about how I spend and save instead of just closing my eyes and hoping. While there are many ways to track a budget (which we can chat about later!), building a budget is pretty standard. It’s all about two things — income and expenses — which make up your cash flow.

MakeBudget

1. Calculate your monthly net income (your gross income minus taxes). For most of us, this is simply our paycheck.

2. Add up all of your fixed expenses. Fixed expenses are difficult or impossible to change and are the same (or roughly the same) every month: rent, utilities, your electric bill, student loans, car loan(s), auto insurance, health insurance, etc.

3. Calculate your monthly contribution to your financial goals. Like the experts say, pay yourself first. Put money into an emergency fund, reduce debt with extra payments, save for a down payment, save for retirement, and/or feed an investment account. If it’s a priority for you, include charitable giving in this step. Whatever you do, do not skip this step! Treat your savings like any other budget line item, not as something optional if there’s money left over.

4. Add up all of your variable expenses. Like the name implies, these are things that are not externally set, so you could, for example, cut back here if you wanted to move faster toward your goals. Examples include groceries, dining out, clothing, entertainment, gifts, travel, gas, personal care, etc.

5. Put it all together. When you subtract your fixed expenses, your contributions to your financial goals, and your variable expenses from your net income, there are three possible outcomes: you’ll either have a surplus, you’ll break even, or you’ll have a deficit. If you come out with a surplus, you can either save more or spend more (assuming you’re already saving the recommended amounts!). If you break even, perfect! If you have a deficit, it’s time to take another look at your figures (most likely your variable expenses), and adjust numbers until you’re in the clear. By the time your budget is finished, you'll have a plan in hand, ready to be followed to financial freedom!

Easy to understand, a bit harder to follow in practice :) Your homework: walk through these steps, and start calculating! If you’ve never made a budget before and are unsure how much to allocate for certain categories, I’d suggest looking back through last month’s expenses (maybe on a credit or debit card statement) and estimating from there. It might take a few months to get the balance across categories just right.

For more, here's another post I wrote about what we take into consideration when making our yearly budget.

I'd love to hear any questions you might have about making a budget, or if there are other personal finance topics you'd like to chat about more!

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