Look at Your Spending History to Create a Working Budget
Analyzing your spending history is important if you want to create a budget that works. To know where you want to go, first you need to know where you are. Start with the good stuff---your income. How much money do you make each month. How are you paid--weekly, every two weeks, or once a month? Do you have a regular salary or is your income more sporadic?
Write down exactly how much you can depend on receiving each month. Put it at the top of your page.
Some people like to use computer spread sheets for their budgets. This helps a lot with the addition and subtraction because it is automatic, but I've found I can work just as well with a yellow pad, a pencil and a cheap calculator to check the math.
Pull out your file of bills, get out your checkbook, or log in to your bank account. Right now you are doing some background work, finding out just how much money you are spending and where it is going. If there is a leak in your water pipes, you can lose a lot of water very quickly. If there is a leak in your budget, your bank account can be drained quickly as well.
I find it is helpful to use a separate page for each category. Some, like food, may need more than one page. Go back in your records for six months or a year. Write down your spending history, purchase by purchase. Usually you can tell by the name of the store what you bought, whether clothes, food, gasoline, entertainment or whatever.
Once you have listed each transaction, add them up, category by category. Then divide the total by the number of months you used. For example, under food I might end up with a total of $3486.00 spent for food in the last six months. If I divide that by six, it comes out to a monthly average of $581.00 I spend on food each month.
If I decide to cut my food spending to $300.00 a month in order to keep from overdrawing my bank account, I am going to have to drastically change my eating and cooking habits.
Inflation is proving to be more and more of a problem as we try to balance our spending at home. While we can go back for a year and find out what we have spent and average it out by month, we also need to be aware just how much more things cost today. Did you spend $500.00 a month on gasoline when it was $2.50 a gallon? That same $500.00 isn't going to buy as much gasoline when it costs $3.59 a gallon.
An advantage of creating an accurate spending history, is the visual picture it gives you of just where your money is going. Once you know this, you can decide what changes you want to make, and you can create a more accurate spending plan. Your spending history becomes the foundation and framework of your budget.