My Money, My Choices
Gail Vaz-Oxlade is a personal finance writer, television host and radio broadcaster. Every Wednesday, she arms Metro readers with tips to keep spending in check.
Gail Vaz-Oxlade: Analyzing your spending will help you create a realistic budget
If you want to be able to cope with life’s little surprises you have to first know exactly where your money is going.
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People are always scratching their heads about where their money goes. Even people who make a good income can’t get to the end of the month before they get to the end of the money. Do you know what you’re spending every month?
How will you cope if your circumstances change even slightly? Lost a few hours a week at work? Where will you trim? Decided the time’s right to have a baby? What will you cut back on in your spending while you’re on maternity leave? Just broke your leg, twisted your back or come down with something that’s gonna take more than a few days to recover from? How will you cover your costs when your income slows to a trickle?
If you want to be able to cope with life’s little surprises you have to first know exactly where your money is going. Sure, you may have a big emergency fund, but you may need it to last a long time, so that’s no excuse for being complacent.
Giving up the delusion of “there will always be more money” is the first step I make people take in my book Debt-Free Forever.
Before I lead readers through the process of making a budget, I insist that they do a spending analysis. I’ve had more than a few complaints about how much work it is, how hard it is, how boring it is. But the knowledge you’ll gain about how you spend your money is worth every minute of the work you’ll have to do.
In the best of all worlds, you’ll analyze six months’ worth of your paperwork. A half-year is just about enough time to catch all the things that only pop up periodically. Less than six months will give you some insight, but not the clearest picture. Don’t forget to add in the things you pay annually like insurance.
Now add it all up. Are you surprised at the places your money has been going? Which categories brought the biggest surprises?
Once you know where your money is going, you’re in a much better position to decide how you want to spend it. It’s all very well and good to say you only plan to spend $400 a month to feed your family of six, but if you’ve been spending two or three times that, your $400 budgeted amount may be nothing more than wishful thinking.
When you end up going over, you’ll blame the budget with a song like this: “See, budgets don’t work.”
It wasn’t the budget that didn’t work. It was you. Yup, your unwillingness to do the work to see where the money actually goes meant you were just grabbing numbers out of the air when you came up with that budget, instead of working from a place of knowledge and purpose.
If you’re determined to live a financially stress-free life, the first question you must answer is, “Where’s the Money, Honey?”
Do that and you’re well on your way to becoming conscious about your money and how you’re using it.