Last month we made the case that to get better results around your goals you should focus on creating systems.  Goals and resolutions may sound great on New Year’s day, but seem overwhelming and unrealistic a few weeks later.

Many of you have a goal to improve your finances.  To address this goal, the second financial system we propose is to Understand Your Spending.  Many women are earning great incomes but have so many demands on their incomes (housing, health care, dependent elderly parents, and entertainment/clothing) that they are behind on their savings.

While the typical “goal” is to “go on a budget,” this is not always a motivating or sustainable solution.  Another approach is to develop systems to more deeply understand your money.  By knowing what’s coming in and what’s going out you can make proactive decisions that focus your resources on meaningful spending that reflects actual wants and needs. The tradeoffs between unplanned purchases and your financial future become clear.

What do we mean by Understanding Your Spending?

Step One: Understand your paycheck.  What is your gross each pay period? How much goes to taxes, deductions like health insurance, how much goes towards social security and medicare taxes?  How much goes automatically to retirement savings or other savings?

Step Two:  Understand your spending.  Get out your 2013 credit card summaries and bank summaries and add up all spending by category.  Take the annual spending and divide by 12.  Is this number greater than or less than your net earnings? What observations can you make?  What are your biggest expenses?  Any surprises?  Are you spending your money on the things that are most important to you? Are you carrying high credit card balances to afford your current lifestyle?

Step Three:  Record your spending.  Over the next 3 months record all spending.  You can use old fashioned pen and paper or Quicken.  It doesn’t matter.  They both work.  Do you behave differently when you are tracking your spending?

Whatever your goals are, by periodically repeating these 3 steps you will reduce your stress, increase your awareness of the demands on your money and start to make better spending choices. And, if you have unrealized goals to save more or pay off debt, the answers will come into focus.

Let us know how it goes!