Have you ever wondered where all your money goes after all your bills are paid?
If you answered that question with a “yes,” you are not alone.
According to a study presented by the Brookings Institute in March, as many as 38 million families are currently living paycheck to paycheck, and that includes more than 25 million families who are considered middle class with a median income of $41,000 per year.
Many of those who live hand to mouth even have assets such as a home or a retirement account, which is obviously good news. The problem is, living without any savings for emergencies leaves them vulnerable when disaster strikes or when something breaks down or needs to be replaced.
How does this happen?
There is no blanket statement that could accurately describe why many families are unable to save . Everyone’s situation is different, after all, and there are many factors that can affect someone’s ability to get ahead. However, it’s safe to say that at least some people fail to save anything.
You know the type.
They get their paycheck on Friday and spend it ’til it is gone — then spend the rest of the week counting down until payday. Are you that kind of person? If you are, you need to hear this more than anyone else.
Fact: There is truly only one way to know how much you’re really spending — you have to track it.
How to Track Your Spending
It might sound like a huge pain (and it is), but it is the only way to get an honest look at your total financial picture and find out where all your money goes after payday.
Want to find out how much you’re really spending? Follow these simple steps:
1. Collect bank and credit card statements. In order to track your spending, you’ll need to start with the tedious task of collecting all your bank and credit card statements. It can be a huge pain, but it is the only way to truly come face-to-face with the reality of your situation and your spending. If you want a thorough look at your overall financial picture, consider gathering statements that go back several months.
2. Sort spending into categories. Once you’ve gathered all of your financial information in one place, it is time to start sorting your spending into categories. Each person’s list will be different, but typical categories will include things such as groceries, dining out, utilities, gas, clothing and miscellaneous.
3. Tally it up. Once you’ve listed all your spending in the respective categories, it’s time to see how it all looks. Fortunately, any spending inconsistencies or problems will likely become extremely apparent when you’re sitting face-to-face with nothing but the cold, hard facts.
4. Identify your weaknesses. This is where it gets ugly. Perhaps this exercise taught you that you’re spending a ridiculous amount of money on food or clothes. Or maybe you’re just now realizing that the cost of transportation is killing your budget and that it might be time to trade your gas guzzler in for something more fuel efficient. Whatever your weaknesses are, own them. Don’t make excuses, and don’t blame your problems on someone else.
Like it or not, there is only one true way to know how much money you’re really spending and, more importantly, what you’re spending it on. The simple act of tracking your spending will quickly shed light on all of your money mysteries. And once you discover areas where you need improvement, you can hopefully use that information to turn your situation around.
Some people live paycheck to paycheck because they literally don’t make enough money to make ends meet. Others live hand to mouth because they are careless with the money they earn and simply spend until it’s gone. Tracking your spending will help you determine which group you can fall into and what, if anything, you can do about it.
The bottom line: The only way to see how much you’re spending is to force yourself into a confrontation with reality. Once you take that crucial step, you can no longer hide from the truth.
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The One Way to Know How Much You’re Really Spending originally appeared on usnews.com
