Track your Spending Pie Style

One of the keys to gaining control over your money and finances in general is to figure out exactly where your money is going. Once you have this information you can then create a budget. But the key is you have to know exactly where your money is going before you can even create a budget. This is a process that will take time to get used to and you will have to work hard to make it a part of your routine. That is the bad news. The good news is this process doesn’t need to be overly complicated at first.

The first thing you need to do is create categories for your spending. At the end of the day you might feel the need to have dozens of categories, thereby adding unnecessary complexity to the process. It doesn’t have to be this way at first. If you want a million categories you can create that latter on. The most important thing to remember at first is the need to track your spending. When you first begin down this road, just keep things as simple as possible. There are four main categories that you should create but a fifth might be necessary for hopefully only a short while, the debt category.

1) Taxes
2) Housing/Utilities/Insurance
3) Miscellaneous/Everything Else
4) Savings/Charitable Contributions
5) Debt (the evil slice, remember this slice needs to be eliminated as quickly as possible in order to not contaminate the rest of the pie)

That’s basically it for your expenditure categories. Now for the hard part, creating a check register of sorts so you can keep track of your incoming and outgoing money. At first you will hate doing this but believe me, stick to it and it will be worth it. Remember the key is to figure out what your bringing in so you can then subtract out how much your sending. If your spending is more than your income, things need to change. Otherwise the maintenance of your debt will end up consuming your entire delicious pie.

This can be an extremely helpful exercise and below are my long term goals:

Taxes – 20%
Housing/Utilities/Insurance – 20%
Everything Else – 10%
Savings/Charitable Contributions – 50%

I have no foreseeable way to make these long term goals happen anytime soon but it is always good to have goals. You will never achieve something if you don’t know where you stand right now. Once you know where you stand currently you then need something to reach for. But once again the key is you have to know what your current situation is so you can create a game plan that will hopefully change your future for the better. That is the power of pie, not only is it delicious but it can also be nutritious. So go ahead, serve yourself up a slice.

Extra Details about Each Category

1) Taxes
Pretty much all taxes, except for sales tax. I personally have not separated this piece out because of the difficulty in doing so. For example my cell phone company charges me a flat rate that includes all taxes and fees. I’ve also had electric companies who separated out sales tax and others who didn’t. Sometimes it is really hard to know where the taxes and fees are hidden. Stick to keeping track of the biggest contributors to this category such as income, social security, medicare and property taxes. Remember, at first keep it simple and if you really want to try and separate out sales tax after you’ve got your process down than go for it.

2) Housing/Utilities/Insurance
This is everything from rent, to your electric, trash, water and sewer bills to medical, renters, home and auto insurance to phone, internet and television bills. Try to remember the vast majority of this category is the essentials and not so much the non essentials. Separating out the two can be a great mental fight but sometimes sacrifices have to be made in order to meet your financial goals.

3) Miscellaneous/Everything Else
This is for all other expenses such as clothes, food, personal care products, medical costs, gas, vacations, etcetera. This category is a jumble of wants and needs but normally you have a little more control over the cost of these items than you do over the housing/utilities/insurance category. For example you don’t necessarily need to go on an expensive vacation but not having auto insurance is pretty much illegal. In other words you can go without or reduce the cost of the items in this category more easily than the other categories.

4) Savings/Charitable Contributions
This is my favorite category. It is the category that involves saving for your family and for people all over the world. Remember, there are two types of savings, for this earth and for Heaven. The goal is to grow this slice as big as possible. This category includes contributions to your retirement accounts (employer contributions as well), savings account, brokerage account as well as tithing and other various charitable contributions.

5) Debt
This is the slice that you want to shrink and disappear as quickly as possible. You probably already know what this category entails, such as your mortgage, car loans, student loans and credit card debt. Any and all debt needs to go into this category. Ranking good debt versus bad debt is as exhausting a process as trying to rank bad sin versus less bad sin. It’s all debt so it all needs to go into this category.

The beautiful part of this process is it easily shows you what spending categories are growing and what others are shirking. Some you will want to grow, savings/charitable contributions, and others you will want to shrink, debt.

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