One of the first steps to living within your means is to figure out how much you're spending each month. And the best way to do that is to track what's going out. Once you have a clear sense of where your money is going, you can find places where you can cut back — or just get a reality check on how much you spend on, say, that daily latte at Starbucks. Here's a guide to help you make your money map:
Start with your fixed expenses. What do you pay each month for your rent or mortgage, car, health club, insurance, utilities, phone service, cable, preexisting credit card debt, student loans, etc.? Make a list of these amounts.
Then track your variable expenses. Most people have no idea how much they spend each month on things like take-out food, entertainment, drinks with friends, even gasoline and groceries. Starting now, you're going to keep tabs. Every day, for the next month, you're going to get a receipt for everything you buy, even the small ones. If you buy something online, that means printing out a record so you can account for that as well. If you shop on the phone, make a note. Then, every night when you get home, spend five minutes pulling those receipts out of your wallet and entering them into my Spending Tracker (available to subscribers of my online program, ) or jotting them down, category by category, on your legal pad.
At the end of the month, you'll have a money map. You'll know how much you're spending, and on what. And then you'll be able to make some changes (and perhaps even spare your Starbucks habit).
Know what’s coming in
While keeping track of your spending is ultra-important, it's equally important to know what money you have coming in. How can you know if you're spending too much if you don't know how much you have to begin with? Here’s how:
Start with a pencil and paper (or sign up for my online program, , and use my Spending Tracker tool) and your pay stubs for the past three months. Look at the net income line on your pay stubs. Your gross is meaningless; it's what you take home that matters. Add up your net income and write down the total. Next, make a tally of any other steady income (no bonuses or tax rebates; only the checks you receive regularly) that's come in over the past three months; rents, if you own rental property; dividends from your investments; money from annuities; etc. If taxes aren't withheld from these payments, calculate how much you'll lose to Uncle Sam and subtract from that total.
Add your two totals together, and then divide by three. That's your average monthly income over the past three months and a fairly good representation of what you can anticipate in the months ahead.
Jean Chatzky is the financial editor for “Today,” editor-at-large at “Money” magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2004. For more information, go to her Web site, .