Welcome back! If you've stuck with us so far, you've (1) faced your fears and figured out your net worth and (2) set specific and achievable financial goals to motivate you through the budgeting process. But before we actually set up our budget, we're going to track our spending for a month so you have a better idea of what categories and amounts to use in your first budget (which we will be setting up next month-- promise!).
To Do: Track your spending for one month
Step 1. Pick and set up a tracking method.
There are a lot of different methods you can use to track your expenses. Look through the list and see what fits you the best.
Mint.com or yodlee.com. I've listed these two first because
they have the broadest appeal-- pretty easy to use and can be huge time savers. As we mentioned in month 1, these websites securely aggregate data from your financial accounts into one source. So you can look at your balances and your transactions all in one place. If you already set up accounts with one of these to track your net worth, you're all set to start tracking your expenses with them.
personalcapital.com. It's pretty similar at first glance to mint and yodlee, but I've separated this financial system out since it has a slightly different niche-- those who have "outgrown" the investment tracking ability of mint and yodlee. It has received pretty good reviews-- check out this one and this one. It is great for tracking net worth (it syncs with our retirement accounts better than either Mint or Yodlee), but unfortunately lags behind in tracking spending (you can't create new categories or split transactions between categories-- a big fail in my opinion), and does not include a budgeting tool.
Paper. If you feel more comfortable keeping track of expenses on paper than online, then simply writing down each transaction (date, payment method, amount, to whom, for what, category) will work as well. Just be aware that this method is infinitely more time intensive and absolutely requires that you keep receipts (at least until you write it down) and update frequently (daily would be best). Do not attempt to keep track on paper unless you know you're going to stick with it (and, in my opinion, truly do not feel comfortable keeping track online).
Excel. I'm not talking about doing your budget in Excel, but about using it as a tracking device for your spending. Unless you are importing data from your credit card statements into Excel and using pivot tables or something to aggregate your data into categories (which kind of feels like reinventing the wheel to me), I would generally not recommend logging your daily expenses here. Why? It's basically the same thing as doing it on paper, but it suggests a level of comfort with technology that would make me say, just use mint or yodlee and save yourself a lot of headache.
Quicken. I personally don't use Quicken, but Lisa does. She likes it, but has said that there have been multiple times when she's had to use her accounting knowledge to figure out how to do things. So unless you have a pretty strong financial/accounting background, we'd probably stick with Mint or Yodlee as our primary recommendations.
Step 2. Check in on your spending once a week.
Once a week (it's helpful if you do it the same day each week to create a routine), review your transactions and categorize them. You want to make sure that the transactions are correct (i.e., no one stole your credit card, and the cashiers rang them up appropriately) and in the right category. Most of the electronic systems we recommended will attempt to do this for you, but they can't get it right 100 percent of the time. You may need to change categories, create a new category, or split a transaction. If you don't do this at least once a week you run the risk of forgetting what certain transactions were for. If you're doing your system on paper, you'll need to do this more frequently (probably daily instead of weekly). Keep tracking until next month when we'll check in with you to use that information to create your first budget!
Need some guidance on categorizing your transactions?
- Splitting transactions on Yodlee (a little outdated, but I think it gives enough information to help with the current version)
- Splitting transactions on Mint
- Splitting transactions in Quicken
Add questions at the bottom of the post, and we'll get back to you ASAP!
Extra Credit Assignment: Read up on renter's insurance (if you're renting) and think about getting some!
And to put the "Mamas" in Money Hip Mamas, my favorite Mom products of the month are
What helped my two-year old sleep in an extra hour or two every morning (he was getting up really early before): Memory foam mattress topper for crib
What's helped me pick up toddler toys while 9-months pregnant: Cheap grabber that looks ridiculous, but is actually pretty effective
The book I've been reading to prep me for the newborn sleep battles (again): Health Sleep Habits, Happy Child
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