The first step to becoming a "saver" and creating a realistic budget is:
Step # 1: Identify where the money goes.
To accomplish step #1: I recommend using the envelope system and retaining receipts for ALL of your expenses for 2 weeks. The envelope system is an old-fashion simplistic method of budgeting that consists of creating spending categories (i.e. groceries, entertainment, household, etc.) and storing the cash allocated for each category in an empty envelope. The idea is to NOT use your debit/credit cards for any purchases.
Before credit and debit cards were so popular people would withdrawal their paychecks to cover monthly expenses. It has been shown in various studies that we are more prone to spend more when we purchase items with our debit/credit cards due to the physiological disconnect of not "seeing" the money transfer hands. In other words: We do not realize how much money we are actually spending because the "swipe" of a credit card doesn't "sting" as much as passing the cashier a $50 dollar bill for a few gallons of gas.
Therefore, taking it back-to-basics will help you snap back into reality and become more conscious of your daily spending.
Thus, for 2 weeks I want you to do the following: create a budget that consists of the major spending categories (i.e. gas, groceries, entertainment, personal items, etc.) - withdrawal enough cash to fill all of your envelopes and as you spend in each category, account for every penny with a receipt.
Keep in mind - some expenses can not be paid with the envelope system such as rent and other payments that are automatically deducted from your account.
It should also be noted that after an accurate estimate of your monthly spending has been established, if you decide to employ the envelope system as your permanent budgeting mechanism transferring money between envelopes is not allowed, the transference of funds deteriorates the benefits of staying within your allowed amounts. See other posts about the Envelope System for more details.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.
~William A. Ward
~William A. Ward