Recording and tracking every item to establish a monthly budget can be a tedious exercise. I must admit that my wife and I haven’t done this in the past.  However, we recently decided that an accurate picture of how much we spend on various items each month will be important as we plan on a home purchase in the future. Knowing how much we currently spend on things is the first step in establishing a future budget.

To ensure that we wouldn’t find the exercise too tedious or administrative we adopted a very simple system:

1) Focus on one type of variable expense to start – We decided to start by tracking the amount we spend on groceries (we assumed it was a large variable expense for us each month). By focusing on one type of variable expense we could ease into the exercise and not be overwhelmed with tracking absolutely every purchase right away.

2) Use a very simple tracking method – No spreadsheets or fancy software programs.  We decided to just keep every grocery receipt and put them in an envelope.  If you make all purchases on the same credit card you may be able to just look at the monthly statement.  With this method there was little to no overhead and we didn’t need to coordinate “who” updated the spreadsheets/programs.

3) Don’t worry about the tiny category details – We didn’t worry about separating the details of the grocery store purchases into subcategories.  We just added up the totals on each receipt. For example, if we purchased a cake to bring to a party as a gift, we considered it a “grocery” and not a “gift”. Other items included toothpaste, hair products, etc. that some programs categorize as “personal care”, we simply included all of these as groceries.

At the end of the month, we added up the pile of receipts and could see how much we spent on groceries (the total turned out to be very close to our estimated budget).  We plan on continuing this for a few months to confirm the average amount and may move on to other categories as well (by simply using separate envelopes!).

Although our method is very simple, there is one key drawback to the system – not knowing the running total during the month doesn’t allow you to adjust spending during the month. Our system is better suited to establishing an initial budget rather than ongoing management and minimizing of expenses.

Readers, do you have any simple budgeting tips to help people get over the “it’s too complicated or tedious” barrier?  Please share!

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