Budgeting, Part II

Now that you have a handle on your income, it's time to start talking about your spending.

Gather up enough of your check registers to span six months. This will help you average out seasonal fluctuations, such as the costs of A/C in the summer and heating in the winter. If you put a significant number of purchases on credit or debit cards, collect six months worth of statements for each card, or if you don't have those and your card issuer is a local bank or credit union, see if they'll print you out the same information.

Then sit down and start examining how you spend money.

Start with your mortgage or rent payment, since that's the same each month. Note it down on a separate sheet.

Then look at your utility payments. Take six months worth of electric bills, for example, add them up and divide by six for a monthly average. Make it easier on yourself by rounding the amounts up a bit (always round expenses up, remember?) Each time you write down a figure, highlight it on your check register or credit card statement so you won't count it twice.

For example:

You wrote the following checks for your electric bill: Aug. $276.57...September, $188.34...October, $165.66...November, $198.60...December, 245.89, January...$222.78.

On your work pad, just write down: $280, $190, $170, $200, $250, $225.

Total those figures--$1,315--and divide by six for a final figure: $219.16, which you round up to $220.

Mark it down on the same sheet as your mortgage: Electric bill: $220.

Do the same for your gas bill, your water bill, your telephone bill, your cell phone bill, etc. The highlighting will make this easier as you go along. Many of your checks will be for things you pay each month, some will be for things you pay quarterly or even yearly. Simply calculate them all on a monthly basis. (If like most of us, for example, you pay federal income taxes once a year, divide that figure by 12.)

Soon, you'll have a list of items, each with an amount:

Mortgage
Electricity
Phone
Water
Cell Phone
Heating Oil
Clothing
Food
Credit Card #1
Credit Card #2
Car Loan Payments
Cable TV
Car Insurance
Taxes (IRS)
Gifts
Car Repair
Toys
Cable TV
Groceries
Gas


and so forth.

Slowly work your way through your check registers and card statements. Some things may not fall into easy categories. List them individually, but make sure you list everything.

Remember, there's nothing that says you have to finish all this in one session. Do it bit by bit if you like. The highlighting will make sure you don't include any thing on your work list more than once.

Doing this can be interesting. After while, patterns will start to emerge. You will probably be surprised by how much--or how little--you spend on certain items, or the wide range of things you buy.

Don't forget to include things you only pay once a year. (Check another six months of your check register if you need to.) Car registration? Property taxes? Charity donations?

Again, just round them up slightly to whole numbers.

What about things you pay for in cash? We'll get to that in Budgeting, Part III.