Evaluate Your Spending to Save

Nowadays, everywhere you turn, you're being advised and cajoled to save, save, save! And it's a great idea. After all, if you're going to build that retirement nest egg for your Golden Years, it's a veritable certainty that you'll need to do some kind of investing. But oftentimes that little voice in your head nags you with the same rebuttal, "With what?!?" And likewise, in order to begin saving, you need to have money to save. But the good new is that you've very likely already got it! The trick is to know where to look for it. So let's find it.

Here's what you do: look very closely at what you're spending, and then figure out what you can trim down or cut out altogether. Simple, isn't it? It really is. Just start and keep an expense log for thirty days, and write down all – I repeat, absolutely all – of your expenses every day for that entire month. Record every purchase, even every soft drink or cup of coffee. Do not in any way change your spending habits, just write everything down. An easy way to do it is to carry a small notebook around with you (don't worry; you'll get used to it after a few days). This is important, because if you try to rely on your memory or retrieving the receipts out of your wallet every night or weekend, you may make a mistake or miss some expenditures altogether, especially those that didn't produce a receipt. And absolute accuracy is what you're shooting for. Also be sure to include any debit or credit card charges.

Now, at the end of the thirty days, transfer all of your spending to a chart that categorizes each expense by type. Don't be too general in your category labeling here – try not to lump all those incidental expenses into a "Miscellaneous" column. Instead, use categories that have meaning to you; for instance, mortgage or rent, car payment, utilities, cable TV, food, entertainment (such as movies, dining out, etc.), insurance, charities, and the like. When you have everything sorted and totaled, multiply each category sum by twelve to get your annual costs for those items. Then add to the list any expenses that may have fallen outside of your 'test' month, those that you only incur a few times a year (car registration fees and taxes, for instance).

You should now have a pretty accurate listing of your annual expenses. Don't be shocked if you're completely shocked by the numbers that you see on the paper. Most people usually are. Now, go through your list carefully, and determine – with painful honesty, if necessary – whether each expense is a "need" or "want." If it truly is a need, that's fine; but ask yourself if the amount that you're spending on it is practical or if there's some way that you can economize a bit, perhaps by shopping at an outlet or waiting for a sale. If the item is a want, then find the closest mirror and brutally ask yourself if you're really making prudent choices or simply indulging some of your particular appetites. Be a little tough here; evaluate your wants in detail. It may seem completely harmless to go to a movie every weekend, but what if you're also eating dinner at a restaurant two or three times a week and regularly buying CDs and several magazines? Cutting down on those "wants" will, over the course of a year, dramatically reduce your expenses, thereby freeing up more cash to add to your savings.

The point here is that it doesn't have to hurt. Those small cost-cutting measures you make can add up in a very big way. For instance, let's say that you regularly spend four dollars to buy a cup of coffee and a bagel three mornings a week on your way in to work. At the end of a year, you've gone through well over $600. But then, what could you really do with a measly $600, hmm?

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