Welcome to Day 18 of Where’s My Money Going? Month! This February 2009, I’m challenging readers (and myself) to track spending manually for 28 days. Don’t worry if you’re late to the party, you’re still welcome to join. Consider tracking your spending into March.

Why start with tracking spending instead of creating a budget and working just from that? One commenter suggested that a budget would be a better first step, more likely to attract “free spirits” than tracking for a month before they could get started. That’s not a bad suggestion, but while I think that the two are inextricably linked, I see a value to focusing on spending (just for a month) which one can’t get from budgeting. By seeing precisely what you’re spending on, not just the categories, you can build a better budget.

After all, when you create a budget, you have to have some idea of what costs are. For example, the same groceries here in DC cost more than in Delaware. I could just get the figures from the last 6 months spending at grocery stores and budget a mean, or I could come up with a number I want to spend and do my best to hit that.

But I think both approaches are missing the specifics that I hope you’re noticing (as I am) when tracking your spending each day.

There’s no harm in creating a basic budget at the beginning based on what you think you can/should spend. Even as I’m tracking my spending this month, I’ve got a budget set up. That helps me plan spending for the rest of the month, it’s a great tool. I’m just not focusing on it.

At the end of the month, I’ll be talking about how to convert what you’ve gathered into a budget that’s right for you. There’s nothing wrong with using a budget during this month, especially if you’re worried about overspending. I like seeing how much I have left in each category and making spending plans accordingly.

But if you haven’t tracked your spending at least in a broad way, any budget you create will probably need a great deal of revisions. After this month, you’ll have an idea of the spending habits you want to change and a much better sense of how much is reasonable in each budget category. If you need to cut back, you may even be able to find some specifics to give up (depending on how detailed your spending log is).

So hang in there if you feel like giving up before the last third of Where’s My Money Going? Month. The data you’re gathering now is more valuable than mere historical data because a) you’re thinking about it closer to the time of purchases and b) you probably have more specifics to use later. Once you’ve collected this info, you can shape a better budget!

I’d love to hear what you’re learning about your spending habits that’ll affect future budgets!

The YNAB coupon code is still active, it’s mrsmicah and you can enter it on checkout for a 10% discount. More information on the coupon code and giveaway.

This post was part of Where’s My Money Going? Month.

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{ 8 comments… read them below or add one }

DIY Joe February 18, 2009 at 8:47 am

When I started tracking my credit card AND checking account, I was floored by how much I was spending on eating out. So immediately I started reducing my eat out expenditures. Having hit McDonald’s for breakfast once this week, I haven’t stopped going, but now my eating out is the exception and not the norm.

Once I used my historical information to identify the irregular expenses and compulsive spending, I was able to craft a realistic budget AND recognize exactly how close to the edge I am financially.

Aleriel February 18, 2009 at 11:06 am

The biggest thing I’m learning this month is that I need to leave some wiggle room in the budget for unforeseen circumstances. For example, life just kind of exploded last week and my best plans to eat at home were completely undone. I ended up spending twice my entire eating out budget in one week (boy, it sure does all add up, eh?).

It’s most definitely not the norm for me, but having a string of unforeseen emergencies come up in a short period of time certainly puts things in perspective. Flexibility is important and I’d rather allot a higher amount in the budget and not spend it all than run out of money halfway through the month.

Jo February 18, 2009 at 3:17 pm

I used cash yesterday – something I very rarely do – to buy pet food and a few groceries. I usually use my debit card. I have to say that cash is a definite plus to keep from overspending. That said, I plan to set up a cash account on YNAB.

I do tend to either overspend on food – and this is alright if it means staying home to eat and not going out – but I also buy a lot of things I haven’t budgeted for. Not big ticket items; just small things like a DVD movie or book/cookbook, a pair of shoes cuz they’re on sale, etc. Keeping track of those unplanned purchases is a wake-up call. It’s something tangible right there in front of me.

I am not sure about y’all, but I tend to have to tweek my budget each and every month. I also carry the previous month’s balance(s) to the following months, IF there’s anything left, which isn’t often enough to suit me.

Anyhoo, it’s going to be a combination of a rough idea of what I plan to spend plus tracking my spending. There are some bad habits that I need to do away with. 😛

Connie February 18, 2009 at 3:29 pm

A problem I’ve encountered in my budgeting is that some months I’ll have certain expenses that I won’t in other months, and that can really screw up my categories. For example, I get a haircut every other month, which adds $40 to my $20 a month Personal Care allotment. Since $20 is usually more than enough to cover my constant needs, I don’t feel comfortable expanding that to $60 a month every month. So, I’ve started altering my budget slightly month to month to make my category allotments fit what my expenses will really be. As long as I keep the total amount the same, switching up the category allotments makes my budget much easier to follow.

Craig February 18, 2009 at 3:58 pm

Agree, here in the DC area things costs more than other parts of the country. Granted I’m used to NY prices so these seem normal if not low to me. Either way, you can’t just start a budget without having some basis for it. Develop a plan first before you actually start the budget.

mrsmicah February 18, 2009 at 6:28 pm

@DIY Joe, I hear you on learning random things about spending. I’ve noticed how many small mid-week grocery runs we make. I don’t know if it’s a bad thing, but ringing them up individually really brings them to my attention.

@Aleriel, I’m so grateful for the wiggle-room I put in our budget this month. We’re going to go over more than $75 on health-related things, but there’s a couple padded categories that we can take that money from. I suppose putting an “unplanned” column might be another answer.

@Jo, depending on what our obligations will be in a month, I may tweak the budget…if I remember them beforehand. Doctors visits, church events, etc. Like you, I sometimes buy little things…this month I’m keeping a list and holding off until the end of the month so I can figure out what to buy and not buy, which I’m hoping will also help me figure out what I can live without.

@Connie, managing categories can be tough, I’m glad you’ve found a way to make it work.

@Craig, I don’t even want to think about NY prices. I’m just glad that we live in one of the poorer areas of DC/suburbs. I’ve been to grocery stores in better areas and things cost even more. But I can still save a bundle if I buy near my parents’ house.

Andy @ Retire at 40 February 19, 2009 at 3:23 am

That’s exactly what I did. I tracked my outgoings for 2 months and then created a budget from that. I was also told not to change my spending habits when I started tracking, but immediately I stopped buying certain things (takeaway coffee) since I decided it was no long worth buying them!

DIY Joe February 19, 2009 at 8:53 am

Those “irregular” expenses are a pain! Expenses that qualify as irregular for me are: College textbooks, Auto repairs and auto tags. What I did was guess at a yearly amount spent on those items, create slots in my budget for them, and fund them monthly. Car tags are a good example: $80 one time a year, so I sock away about $7 every month so the $80 isn’t unexpected and unplanned for.
Setting up my incremental saving also allows me to not have to change category contributions.

As a side note, I am doing the same thing with Birthdays, Christmas, etc: set aside $25 for each item, each month. That comes out to $300 for each item, each year.

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