Counter-intuitive, I know. “Start with a budget” and “plan your expenses” are all phrases that get tossed around when someone starts down their personal finance journey. The advice has good intentions but I think is misplaced. As the saying goes “God laughs at the best laid plans”. You can never be sure what life will throw your way.

Instead, what I suggest is just dedicate yourself to recording every last dollar you spend for a month. That means the $5 coffee on the way to work, the $70 concert ticket, your $1,000 rent payment, anytime money goes out write it down. For me, I found recording everything in Excel and tagging a description and overall category (e.g. Food & Drink, Travel, etc.) works well. An example of what I do:

Now, this may seem tedious but don’t claw your eyes out just yet. This doesn’t mean you need to turn into a Grandma and start jotting down notes in a checkbook. Try checking your online banking statement in the morning and updating your expense sheet before work. The heaviest lift will be when you reconcile the weekend expenses (I don’t recommend trying to record drink purchases at the bar in real-time…). Other than that, if you keep up with it, should be a piece of cake. Cash transactions (don’t get me started on Maine tolls) should be the only time you don’t have access to an electronic record.

Do this for a full month and then sit down and tally it all up. Net what you spent against your after-tax monthly income. Take a deep breath before you do, sometimes the results are jarring - I know they were for me. Once you have the bottom-line number that is your monthly “net income” or “net loss”, essentially what you are bringing in vs what is going out.

After you have your bottom-line figure go a step further. Add up what you spent in each of the categories you assigned and then dig a little deeper on some of the bigger buckets. Was your monthly Food & Drink bill astronomical because you footed an expensive dinner with your in-laws? Was Travel exorbitant because you were going so stir-crazy you said “screw it” and drove to Boston for a night out and a change of scenery? Or it might be something smaller. When I first looked at mine I was stunned at how much business I was giving Dunkin Donuts. Apparently I’m a sucker for a large coffee and a sausage egg & cheese because I was spending almost $40/wk. at DD. Once I realized this, I started making coffee at home and settling for toast or a granola bar for breakfast. A little less satisfying? DUH….However, the thought that I was going to have an extra $200 a month in my pocket put some pep in my step. And if I go to Dunkin every now and then (I’m still working on this, clearly) it’s more of a treat then an expectation.

After you have examined your spending start to craft individualized categories for your lifestyle. Easy ones are Food & Drink (or you can separate into Groceries and Eating Out), Rent/Mortgage, Utilities, etc. Start to carve out these essential items and allocate what you spent in your “trial month” vs what you think you should be spending monthly. This is the first step to the game.

- B