Too often when creating a budget, the numbers are invented and the time is not taken to observe our current spending. This often is dramatically different from the reality, making it a much bigger challenge to follow than it ever needed to be. Taking the time to understand your spending helps create the foundation needed to create a cash flow plan that will support your desired life.
This step is often much shorter than expected, especially for those who choose not to use cash. With credit cards and debit cards, often by reviewing your statements you can recreate past spending very quickly.
** Self employed, for those who have business expenses, it is important all business related expenses are separated from your personal spending.
Steps to organizing your current spending,
1. Collect all credit card and bank statements
2. If any cash income, or expenses that do not show up on the statements, do your best to estimate and list (withdraws on statements are good for the amount of cash used).
3. Create a cash-flow sheet or excel spreadsheet to help you organize (this makes it easier to work with later).
4. It is time to organize and list all your spending. For this step an honest list is best, include all expenses.
5. Check to make sure you didn’t miss annual or random expenses. A couple commonly missed expenses are; annual insurance premiums, property tax, family vacations, Christmas and birthdays.
Once you have your real spending it is time to move to the next step.