Homestead Financial Literacy : Know Your Spending Habits

When it comes to homestead financial literacy it’s more than just a little important to know your spending habits.   It’s hard to create a budget or plan for frugality if you don’t already know where your money is going.  It’s amazing how quickly money passes through many of our fingers, without any real accounting of where its going.  Until you have an accurate awareness of where your money is going you can’t decide where to cut back or increase frugal tendencies.

Thankfully, this is a really easy fix.  All you need is a pencil and some paper.   Start writing down every penny that comes in and out of your life.  I mean that literally, every. single. penny.  Every time you have some income write it down, every time you have an expense write it down.  It doesn’t have to be a huge Excel spreadsheet, or some kind of bookkeeping software like Quickbooks (though if that’s the flavor you like fine).  A simple notepad divided into columns for date, income/expense, source of income (salary, found)/expense (store, bill) will suffice.  At the end of the month, lump everything into categories: utilities, food, fuel, housing, entertainment, etc.  Once you have that too look at you’ll be able to see where you can cut back.  

Take it one step further and figure out how much of your income your spending on each category.  You might be amazed to see that 40% of your salary is going to movies and dinner out for instance.  Is that something you really want to work for, or would you rather see that salary pay you in different ways?  No right or wrong answers, its a matter of personal preference, but until you know your spending habits you can’t accurately decide if your spending habits are reflecting your personal values and future goals.  Writing everything down will let you know how many lattes or candy bars you actually buy in a month, and will make you think twice before making some purchases.

Be sure to write down checks, credit card payments, etc. in your notebook as well.  Its easy to say that you have that accounting in your check register or on your credit card statement, but keeping it all together in one place, is the best way to make sure nothing is forgotten.  Credit cards have a way of keeping money elusive instead of real to us, making it an easy way for money to escape us without an inventory of where its gone.

If you are of the budgeting sort, after a few months you’ll have an accurate picture of what your budget should reflect.  I’m not a big fan of strict budgets, I don’t see many people able to make them work long-term.  I am a big fan of paying bills/necessities first, savings second, entertainment and extras last.  Maybe that seems a little over-simplistic, but I believe we have a tendency to make money and savings very complicated, when in reality it is basic economics: supply and demand.  Is your supply keeping up with your demand?  Is your demand realistic for your supply?  Are your demands reflecting the goals for your supply long term? 

After a while, you won’t need to refer to your monthly chart as often to see where your expenses are going, but it is always nice to keep it, this way you can refer back to it too see what expenses have increased and where else you might want to cut back (lattes, for example) or increase (savings, for example).

Additional Resources:

• Personal Finance for Dummies
• 30 Steps to Financial Wellness
• The Budget Kit

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