Fight Interest

This is part two of a three part series on budget preparation.  Hopefully by now, you’ve been documenting your daily purchases and you are beginning to see your regular daily cash outflow.  Now for the heavy duty stuff.

Get your bank and credit card statements for the past three months. Before going on, take a moment to consider whether this three month period captures your spending habits appropriately. If not, consider picking three months that do.

Classify each item under a category for your budget (e.g., rent, mortgage, insurance, car note, debt payments, food, gas, utilities, daycare, etc.). It is best to break it down into details for the anlaysis. You will roll items up into a summary for your loan listing.

Identify the ATM and other cash transactions. Add them all up and divide by thirteen. This is your weekly average cash spend. How does that compare to the cash spend you tracked in step #1? If it is off a good bit, you should analyze why. Did you have any unusual items in one of the months? If so, consider bumping up that category in your cash spend and recalculating the allocation. Allocate your cash transactions between “necessary” and “discretionary” based on the percentages calculated from your cash spend tracking.

Create a three month budget. Do you have any expenses that happen quarterly or annually? You’ll have to adjust your quarters for that. Finally, calculate an average monthly budget (See example here).