Tracking and Categorizing Your Expenses for Your Budgeting Plan

If you are going to get control over your debt situation, you must set up a budget. And an accurate and effective budget requires some up-front data collection before categories can be set. This article discusses a few ways this is done.

You’ve had it. Your credit card debt is out of hand and you have to do something about it. Credit card debt is an overwhelming burden that enslaves millions each day. The best and most effective way to eliminate credit card debt is to reduce expenses and bring in more money. This is not the only way but it is the most effective way. However you cannot come up with a strategy to reduce your expenses if you do not have an accurate picture of them. The most effective way to get an accurate picture of your expenses is to create a budget. Budgets can be tedious at first but they are necessary. Here are some pointers in effective budgeting that can help in making progress towards reducing your credit card debt:

Record all of your expenditures for a couple of months. Effective budgeting is analytical and you cannot make an effective analysis without data input. One method people use to reduce credit card debt is to reduce expenses and then take the money no longer obligated by those expenses and pay towards reducing the credit card debt. So you need to track your expenses in order to have an idea in your budgeting plan of how much to allocate for those expenses initially. Get yourself a small pocket notebook and write down everything to include the newspaper you buy each morning before work. Save and ask for receipts—even for the cup of coffee you get at the cafeteria.

Be careful with ATM withdrawals and do not throw away your receipts. ATM withdrawals are detrimental to good budgeting. The next time you go to an ATM machine, take a look at all the receipts the previous customers just left lying by the around it (or even in the machine sometimes). What happens with ATM withdrawals is we forget to record them while budgeting. The cash retrieved from an ATM machine should not be recorded as income because your paycheck already was. But if that ATM charged you a fee for that withdrawal then you need to record those fees in your budgeting data collection and analysis.

As you track spending, budgeting categories will evolve. When you begin creating your budgeting plan, you will probably initially create some obvious expense categories that you know about like household utilities, car payment, mortgage payment, etc. However it is the daily incidental expenses that make the budgeting data collection a challenge. As you track your spending for budgeting, the frequency of certain expenditures will obviously show a new budgeting category is necessary.

Your miscellaneous expense category can be misused. Tracking expenses for the budgeting process can get tedious and there may be a temptation to label one category as “Miscellaneous Expense.” If you have a category like this, make sure that it is only used for expenses where it would not make sense to break down into further detail. Let’s say that at work, you hit the snack and soda machines two or three times a day. Rather than record the expense for all the different items you might buy, you can set up a miscellaneous expense category and add a line for daily snack expense. Say you buy the morning and evening newspaper each day plus a weekly news magazine. You could add this expense in the miscellaneous budgeting category or set up another general category named “Periodicals” instead of separate categories for each type of periodical.