Thursday, July 30, 2009

Where Does Your Hard-Earned Money Go?

Most people don’t find budgeting exactly fun. It is, however, critical to expense control and your retirement planning. But where to begin?

We started with an analysis of our spending habits. Ron downloaded months-worth of spending data from our bank’s web site and American Express. He then grouped like expenses together and determined what category names to put on the groupings. Then we started tracking our spending in those categories. You need to do this too, as a precursor to establishing your budget. I guarantee you will become more aware of where your money is going – and in the process will make some surprising discoveries.

Although some of your category buckets will be the same as ours, you will have others we don’t have, and/or may want to track at a lower level of granularity. The categories we use are listed below in alpha order with a little on what they include, where necessary:

· Allowance – Walking around pocket money.
· Books/Magazines
· Car Insurance
· Car/Transportation – Gas, maintenance, and for us city-folk, public transportation.
· Charity – Including church donation or tithe.
· Clothes – Plus shoes and accessories.
· Dry Cleaning
· Entertainment – Dining out, movies, concerts, theater, clubbing.
· Food – Groceries (does not include dining out).
· Gifts
· Grooming – Haircuts, coloring, manicures, pedicures.
· Gym Membership – May also include exercise and dance classes.
· Health Care
· House Cleaning
· Household Goods
· Housing – Mortgage principle & interest or rent, property tax, parking, homeowner or renters insurance, association assessment, home repairs.
· Internet
· Miscellaneous – There’s always something that defies categorization.
· Savings – Money that comes out of your pay and goes directly into a bank account, a 401K, investments, or deferred compensation.
· Telephone – Land line, cell phone (include cell internet service).
· Travel/Vacation – Air travel, hotel, meals, other spending on vacation.
· TV – Cable, DirecTV.
· Utilities – Water, electric, gas, trash collection (be sure you know whether any of these are already included in association assessment fees).
· Wine – Wine and other alcoholic beverages could be included with groceries, but we like to track it separately.

Again, these are our categories and may not work for you. You may have child or adult care, tuition, alimony, debt repayment (loans or credit cards), lawn care, legal fees, or other expenses pertinent to your life.

Start evaluating your spending today. It’s a necessary step before establishing your pre-retirement budget, which will be next week’s subject.

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