You can probably list all of your major expenses and the amount paid for each one every month off the top of your head. However, that total is likely significantly less than your net income. So where is all that extra money going? Maybe you have stopped eating out (and going out) in an effort to save money to buy a house. Or perhaps you are simply trying to figure out how much you can comfortably afford to spend every month on a mortgage payment. To do this, you are going to need to thoroughly evaluate where all your money goes so you can then determine where you can cut back and save.
Insurance – If you are trying to figure out how much house you can afford, don’t forget to factor health, automobile, life, and homeowner’s insurance premiums into the equation.
Transportation – Gas, public transportation, and parking need to be considered. If you drive to work every day consider carpooling or taking advantage of public transportation to save money.
Recreational Activities – Gym, CrossFit, or yoga packages can be quite costly. If you like to go camping, biking, etc., don’t forget about the gear necessary for these activities.
Vacation – You don’t necessarily want to say goodbye to vacations indefinitely after you buy a house. Factor in a set amount every month to contribute to a “vacation fund.” Consider skipping the more expensive vacations and replacing with a camping trip or kayaking tour.
Health – Do you generally spend money on supplements, essential oils, fair trade teas, and cold pressed juice cleanses? Health-related products are items you really want to try to keep in your budget, but that does not mean you can’t reduce your allocated budget for. Ordering in bulk online will generally save you money while investing in a juicer will eliminate that $200 three-day cleanse you do every month.
Kids – Everyone tells you kids are expensive, but you don’t fully understand this until you have one. Every time you turn around they need money for school lunches, class outings, extracurricular activities, school supplies, etc. You don’t want to deprive them of these things, but you can keep an eye on how much you are spending on name brand clothes and electronic gadgets.
The easiest way to accurately evaluate where your money goes every month is to write down every penny you spend. This can seem like a daunting task, but committing to it for even just one month will help you determine where money is being spent and where you may be able to cut back.