The Benefits Once You Know
Step number one is gathering up all your spending information. If you actually have all your receipts from the previous month, you're well ahead in the game. If you are like most people and only have partial to no documentation of where you're money has been going, it's time to start saving those receipts and bill statements. Your collection system doesn't need to be anything fancy, and a big envelope will do. Once the information has been gathered, you're ready to make the budget.

Before you give up because the effort of keeping track of all this information will be way too much, there are a number of good programs you can buy that will allow you to see where your money is going. For those not willing to pay for a budget planner at the moment, you can still do a free GreedyFools cash flow analysis. Even for people who don't feel they need to make a budget, taking the time to gather all your spending information and seeing your current spending habits can be an eye opening experience.

The good news is that once you know where the money is going, you have put yourself back into control and can make the decisions that need to be made. With you current spending habits now in front of you, you can see if there are expenses which you really don't need to be making, areas where you need to reduce the amounts you're spending as well as items or activities that cost more than what they're worth. By taking the time to read some of the articles on this site and look at the saving tips, you should be able to reduce a number of expenses quite extensively with only minor changes in your habits.

An additional benefit of keeping track of where your money is going is that you can begin to plan for expenses for which most people fail to prepare. These include regular, but infrequent expenses such as health insurance costs and taxes, as well as irregular and unexpected expenses such as car repairs, large appliance purchases or hospital treatment. These are the expenses that make many people feel as if they have enough money most months, but then suddenly find themselves missing their budget targets during other months.

For those who find that they are not able to reduce their spending below what they are making, then the obvious answer is that you need to figure out a way to make more money. This is an aspect that is often ignored when making a budget, but a perfectly acceptable alternative to cutting expenses. Whether it is asking your boss for a pay increase or turning a current hobby into a part time business, there are a number of actions you can take to increase your current income.

Changing old habits is never easy, but taking the time to write down how you do currently spend your hard earned money will make it a lot easier. Better yet, once you have your spending in line with the amount of money you're making, getting out of debt and saving for retirement has once again become possible.
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Copyright Jeffrey Strain 2002. Reprinted with permission: savingadvice.com is a down to earth money matters site providing a wide variety of savings articles and tips, as well as the savings newsletter, The Frugal Saver.