Fight Interest

The first part of budget preparation is to determine what your current spending patterns are. We do this to ensure that the budget you set is achievable.

Get a small notebook and track your cash spending for two to four weeks. Be specific - what, when, where, how much, and why.

Do you spend $100 per month stopping at Starbucks or Dunkin Donuts instead of drinking the free coffee at work? Are you more likely to buy a candy bar and soda on the days you skip breakfast? Knowing (and acknowledging) these tendancies can offer some opportunites to improve.

Now take each item and classify it as:
1) Necessary (expected and unexpected)
2) Discretionary

Note - You may split some items across the categories if you bought something at a higher price for convenience or chose a higher quality product.

Now calculate the relative percentages of “necessary” and “discretionary”(See example here).

This post is part one of a three blog series on budget preparation.  Each part is extremely important in setting a good foundation for proper debt management and financial security.  Look for part two coming soon!