You Need to Know Where Your Money Goes: An Article in the McGallicher Money Makeover Series

Have you ever noticed that the more you make, the more you spend? Have you been meaning to save some money one of these days when you get some extra, but find that never happens? In a previous lifetime - before I became a stay-at-home mom - I had plenty of extra money, but never realized it. Even though my husband and I had free rent and utilities and two incomes, we just barely managed to get by each month.

Why weren't we rolling in the dough? There were two reasons: we were blindsided by unexpected expenses and we were struggling with credit card debt. However, another major contributor to the problem was that we didn't know how to manage our spending. We bought things that we wanted or needed with no master plan. I knew how much certain bills were every month, but as for others I was clueless. Groceries? I bought more when we were low on food. Gas? I filled up the car when it was nearly empty. Phone Bill? I found out what we owed when it arrived in the mail.

As I can testify, it doesn't matter how much you have, but what you do with it. Think of your money as though it were water: it flows into and out of your accounts each month. You use it for necessities (like cooking) and for luxuries (like bubble baths), and sometimes it just seems to "leak" out.

How can you funnel your money into one cistern for the necessities and another for the luxuries? How can you "plug" those leaks? You've got to know where it all goes, and in order to find that out, you need a spending plan!

Setting up a spending plan seems like a lot of work initially, but in the long run it will save you time AND money. More importantly, it will you give you a powerful sense of control over your finances. Here is what you do:

1. Record all of your expenses for one month. You can use 3X5 cards (one per day) or a small notebook (a page per day). List EVERYTHING you spend, whether you pay for it with cash, check or a charge card. Don't round off - list the exact amount in dollars and cents.

2. At the end of the month, total your expenses by category. My categories include Charities, Debts, Entertainment, Freedom Account, Gas, Groceries, Mortgage, Phone, Savings, Utilities, etc. Yours will vary according to your situation, but most folks have between 15 and 20.

3. Make a chart for the following month showing how much is allotted for each category, based on your previous month's pattern. This works for you because it is not a budget, but a snapshot of your personal and unique spending habits. As the month goes by, track your actual expenses to see how they match up with your projections.

4. Make any necessary adjustments for the following month. Once you have established a baseline for each category, you can choose to modify your spending habits in order to save for those things that you though you couldn't afford.

The total that you allot for all categories combined in one month should equal your net income! If you find that you are spending more than you are earning, this exercise will help you to decide what you need to eliminate.

Perhaps you have been living within your means, but had no idea that you were spending hundreds of dollars on fast food each month. Now you have the knowledge you need to redirect that money. Or you might decide to make a concerted effort to lower your utility bills each month, knowing that the money saved could be spent on a vacation instead. This method works because it allows you to SEE the savings. You won't feel deprived cutting back in one area, where you know the money is going to another area where you really want to spend.

Some Helpful Tips

· Your utility and insurance companies can set you up for "budget billing" so that your payments are the same every month. They take the total annual average and divide by 12. No more surprises!

· Nearly all of your monthly creditors will allow you pay by auto draft from your checking account. This is free (unlike bill payer) and helps you in three ways:

1) Your payments will never be late, which is important in order to have good credit

2) You will save the time and energy that you would have spent writing out a check each month

3) You will save $5 per year, per creditor on postage

You will get a statement each month and all you will need to do is subtract the amount from your checkbook balance. Not only is this a convenient way to pay for your mortgage, cable or satellite TV, internet service, phone bills and electric bills, but it is a great tool for making regular contributions to your favorite charity, your kid's college fund, or your savings account.