Budgeting, Part III

In the first two parts of this series, you've been gathering information that should be creating a picture of your spending habits. By listing checks and credit card purchases by amount and category, you should at this point have a fairly good idea of where much of your money goes each month.

This can be very revealing. You may be surprised to find how much you're paying for utilities, or how much car maintenance costs over a six-month period. You may find that your video rentals add up to a surprising amount , or that you haven't been spending as much on clothes as you thought. At this point, try not to draw any hard or fast conclusions. And don't start pointing fingers at anyone in the family. Almost everyone spends in a way that others may not agree with, but try not to be judgmental. Once you have all the information, it will be time to see where you can save without feeling deprived.

Now...it's time to find out where your cash goes.

The only way to do this is to have everyone keep a diary for a few weeks, one in which you note down everything you pay for with cash...and I do mean everything. If you look at MoneytoSpare.net's sidebar feature, How Much Could You Save? you'll see some examples of how spending small amounts of cash can add up. (Click on the header image.) So noting down the small stuff is important.

Get everyone a small notebook they can tuck in their pocket or purse. Start writing down everything you pay cash for: the coffee and donut you buy at the drive-through on your way to work. The cash tip you leave at lunch, the cash tip you give your hairdresser. The $30 you drop in the collection basket at church. The sodas you get out of the vending machine at work. The cost of your Saturday movie tickets...and the cost of your popcorn and soda. The newspaper you buy each morning. The drink you have on your way home each night. The candy bars you buy at school. The candy bars you buy at the convenience store.

Keep track of it for at least two weeks (a month is better) and then put these amounts into your categories, but add an additional label: Cash. When you've done this, it's time to starting using this information to improve your finances. We'll talk about that in Part IV.