Track your spending.
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In this economy, tracking and analyzing your financial habits has never been more important. The good news is that with the availability of personal computers and specialized programs, it's easier than ever to understand where your money is going.
The foundation for building a spending plan, learning how to budget, reducing expenses and saving money is keeping a financial journal. It also frees you from having to keep up with all of those little transaction receipts that fill your wallet.

Most people are shocked at how much money they blow on inconsequential items. Writing down all of those expenses is often a sobering experience. It can convince the most extravagant shopper to cut back. You'll also want to track the retailers, times and dates of your spending. If you're specific enough, you'll be able to identify when monthly bills are due, where you are spending, your temptations and the places you can save money. Your savings—no matter how little you can put aside—must be a top priority.

Keeping a Ledger

If you're a traditionalist who prefers pen and paper, all you need is a basic notebook or pad. It should cost under $3 to write down your deposits, withdrawals and expenditures. To stay organized, it's helpful to categorize your spending into areas—mortgage, grocery/food, energy, water, car payment, cable, personal grooming, etc.—by assigning dollar amounts to each category. Your goal should be not to exceed the allotted amount budgeted to the specific area. Now that checkbooks are passé, you can use your debit cards to shop then log your expenses manually. Just remember to shred all of those little receipts before tossing them.

How to track your cash online

Cash Envelopes

For many, a cash-only system is a smart solution to prevent overspending. In this system, envelopes are labeled with the various monthly expense categories and stuffed with a budgeted amount of cash. As bills become due or expenses occur, the appropriate amount of cash is withdrawn from the envelopes to cover the costs and replaced by expense receipts. Once the envelope is empty, you know if you hit your spending limit for that budget area.

Electronic Budget Tracking

Consumers can find everything they need online to begin tracking their expenses electronically. A basic electronic budget worksheet is available for free at, or you can purchase a software program for approximately $60 to help you manage your money. Quicken is very popular, as it automatically downloads and categorizes your income and expenses. Just be mindful of using online sites to manage your money, as they require all your financial information, which can be a security risk.

As you track your spending, your goal should be to achieve a disposable net income—an amount of money that you are left with after you pay your total monthly expenses. Small adjustments to your spending plan can improve your disposable net income.

Don't forget to include annual discretionary expenses. Birthday gifts, holiday spending, sports/extracurricular activities and automobile maintenance costs pop up regularly, so make sure to include these in your budget.

Clarky Davis is the author of the Debt Diva Blog and the Debt Diva's 2008 Financial Guide. She offers budgeting and money management advice based on her own experiences and more than five years working in the debt management industry. She is a spokeswoman for CareOne Services, helping consumers gain control over their debt.

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