May 28, 2007

The First Step Toward Gaining Control of Your Finances

I recently posted about tracking my expenses in Quicken, and I realized that I haven't mentioned that it's the single-most important thing we do to manage our money.

If you're serious about reducing your expenses and saving money, the single best thing you can do is keep a log of your spending. It's not easy - not so much because it's hard to record every penny you spend, but because psychologically it can be daunting to confront the truth about your spending. However, if you do this for a week, then take a look at your log and see where you can cut back, you'll most likely find that you can save hundreds of dollars with a few changes.

For example, many people spend more on eating out than they realize, whether it's picking up a bagel and coffee in the morning, grabbing a candy bar from the vending machine or cafeteria at work, or not appreciating how much buying lunch every day adds up. Some people are surprised at how much they're spending on clothes or even gas.

In our case, there have been some major changes in our spending since Alex was born. There's the obvious cost of daycare, but we also eat out a lot more and spend more on clothes, toiletries, and a small fortune on diapers and toys. It's also costing us upwards of $50 to gas up our Nissan Altima nowadays. I'll be the first to admit that we don't always stick to our spending plan, but tracking our expenses in Quicken makes it easy for me to figure out where we went astray and what changes we can make to stay within our budget. And that means increased savings, less debt, and more vacations.

When you're ready to take another step forward, check out Lifehack's tips for living on a tight budget.

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