Ways to manage household spending

These days, very few people have money to spare.  In fact, most of us are watching every penny.  A record number of people are using coupons for shopping, keeping track of every dollar they spend, and are always on the lookout for more ways to save money.  Shows like “Extreme Couponing” play on TV, and websites like “Debt-Proof Living” and “Deal-Seeking Mom” are booming with membership increasing on a daily basis.

One of the best ways to save money is to keep close track of what you are spending.  When you have to account for every dollar, you start to see where money is being wasted, and how you can cut back.  And there is almost always somewhere that we are wasting money.  That coffee on the way to work each morning or the pack of cigarettes each day, the convenience foods purchased to save time or late fees on bills; any one of these could be something you spend money on, and every one of them is probably a waste.

How then do you keep track of everything you spend?  Time is in short enough supply in most of our lives, and now you’re expected to know where every dollar you are spending goes?  Ridiculous.  Impossible.  Except that it’s not, so read on for some tips.

Cash is not your friend.

Limit the amount of cash you carry.  Cash is very easy to spend and it’s even easier to lose track of what you’re spending it on.  Settle on the lowest amount you are comfortable with, whether that is $20, $50 or even $100.  If you feel you need to carry more cash than that, take a good long look at your reasons.  Having cash on hand if you need gas or milk or for an emergency is one thing, but any more than that just becomes temptation.

For whatever amount you decide to carry, try not to spend it.  If you do, however, you should do two things:  first, always get a receipt.  Even if it’s for a pack of gum, get a receipt.  Put it in your wallet where you keep the money.  At the end of each day, week or month, you will be recording these receipts so you’ll want to have all of them together.  We’ll get to where to record them in just a moment.

By getting receipts for everything, there is no carrying a notebook to write everything in.  If you are disciplined enough to do that, great, I admire you.  But the reality is that if you’re reading this, you’re probably not.  I know I frequently started out with great intentions, but I don’t have the kind of life where I can stop what I’m doing and write down every little transaction.  Getting a receipt, however, takes no extra time.

Use a financial tracking program.

I use Mint.com, but if you have another you like as much or better, use it.  Whatever you pick, make sure that you can sync it with your bank accounts.  It saves a lot of time and data entry.  One thing I really like about Mint is that you can add in cash transactions and have them subtracted from your last ATM withdrawal if that’s how you get your cash.  So this is where you will record all those receipts you have in your wallet from your cash purchases.  Once they are recorded, you can toss the receipts.

You should also go through the transactions and make sure they are being recorded as the correct categories.  I do this once a month.  Since the program learns as you go along (most do) I don’t have to keep re-categorizing payments that happen every month or for places I go regularly, I just need to update new ones.

Once you have entered your data for a while, take a look at what you’re spending.  See if there are areas where you are spending money frivolously.  Do you need to eat out as often as you do?  Could you plan menus ahead of time so you can shop less often and eat at home more?  There are usual things you will see that can easily be changed.

Create a budget.

Once you have some idea where you’re spending your money, create a budget for yourself.  With many financial programs, this is very easy to do.  You set the amounts you expect to spend in each category each month, and then the program tracks where you are and alerts you when you are close to going over or if you have exceeded your budget for that month in a particular category.  If you do exceed a category, look into why this happened.  Sometimes there is a good reason for it, like an unexpected expense.  Other times, you’re simply over-spending.  Either way, it’s good to try to adjust your spending or your budget so it doesn’t keep happening.  Put more aside to cover those unexpected emergencies, or cut back your spending in that over-extended category if possible.

One thing I like about many of the programs is that you can set the budget items to either start fresh each month or to roll over.  This way, yearly expenses build up a balance and are covered while things like your clothing budget doesn’t so that whatever you don’t use each month is available for savings.

Once you set a budget and have worked out any kinks, stick to it.  Don’t slack off.  Continue keeping track of what you spend, keep updating your financial software so the categories in your budget are as accurate as possible.

Save, save, save.

You will be surprised when you realize that some of your expenses really are unnecessary or at least excessive.  Once you identify these areas, you will be able to find money that you didn’t know you had.  It might be a very small amount at first, but that’s ok.  Save what you can.  Make a plan to pay off debts.  As you pay off each, you can use that money to add to what you’re paying on another, or you can add it to your savings.  I like to do both.  When I pay off a debt, I take half of what I was paying and put it in savings, and add the other half to the next debt I’m working on paying off on my list.

Managing your household spending, and by doing so making yourself more financially secure in the process, isn’t as hard as we think it is before we start doing it.  Considering the amount of stress that comes from money troubles, it is well worth the effort.