When we start examining our spending, it’s usually a good idea to take a month or two to do a detailed spending analysis. This typically involves recording and analyzing every aspect of our expenditure to capture all our expenses, including those that typically slip under the radar.

Once we’ve done that, we execute a turn, a motivated, coherent adjustment to certain aspects of our financial lives. This includes things like

• Setting up and paying into an emergency fund
  
• Picking budget categories to tackle and setting up projects to tackle them (groceries, utilities, etc)
• Scheduling a half-day each month to do the next month’s budgets, incorporating lessons learned so far
• Finding new sources of income, or enhancing existing income

Going forward, we’re going to need to keep track of our spending and our financial improvement efforts, to make sure the effort bears fruit.

It’s not realistic to continue to monitor every single aspect of your spending, because that takes too much time and effort, and you have more important things to spend your discipline and attention on than recording the fact that today’s commute cost you £2.40.

You need to find a long-term budgeting and tracking exercise that works for you.

Are you an obsessive bank balance checker? That’s a bad habit that you should probably replace with a few good habits I’d like to tell you about.

A common question when you start tracking your spending is: How do I choose which budget categories to use?

Some categories are very obvious, but overall you can end up with too many categories, or categories that are less useful in your attempts to adjust your spending. Since this is the source of all the information you use to control your spending, it’s important to get it right.

Remember: Recording your spending is only a tool, and you need to make that tool as useful as possible.

How does an exercise like budgeting miraculously transform your monthly finances from a source of anxiety and stress into a solid platform for achieving your goals as an individual or as a family?

The short answer is that it doesn’t. Budgeting, and it’s bigger sibling, Financial Planning, are merely tools. Properly applied, these tools allow you to take control of your finances by organizing how you will earn and spend money. They allow you to identify opportunities for recurring savings and give you a way to plan your way out of a financial deficit, or into a position of financial strength.

Let’s take a closer look at the process and how it can help transform your financial situation.

You know how you spend your money, right? After all, every time some money leaves your account or your pocket, it’s due to a decision you made.

Well, it turns out things aren’t quite that simple. For a number of reasons your grasp of your finances is likely to be a lot less precise than you think. In fact, unless you’ve carefully measured your own spending habits, you probably have quite a misleading idea of where you can save, and what you spend too much on.

This first step is designed to get you a little distance from your spending, so that you can take a new look at what your cash is spent on.

The first step in taking control of your spending is understanding where you spend your money today.

At the bottom of this post is a link to a simple spreadsheet that is designed to make it easy for you to do just that.