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Chapter 1: Assessing Where You Are Financially
Book I
Taking
Charge
of Your
Finances
Your spouse or partner should gather the same information because the goal
of this exercise is to give you as complete a picture as possible of how your
household spending compares to your household income.
Categorizing your expenses
Creating a worksheet modeled after the one in Table 1-1 (at the end of this
section) will help you organize your spending and income information and
make sure that you don't overlook anything. This worksheet will also come in
handy in Book I, Chapter 3, where we help you build a budget.
The worksheet in Table 1-1 divides your spending into three categories:
Fixed expenses: These expenses stay the same from month to month.
Examples are your rent or mortgage, car loan, home equity loan, and
insurance.
Variable expenses: These expenses tend to vary from month to month.
Examples are your groceries, gas, utilities, restaurant meals, movies,
CDs, and books.
Periodic expenses: These expenses may be fixed or variable. You pay
them just once in a while, such as quarterly, every six months, or annually.
Tuition, some kinds of insurance, property taxes, and dues are examples.
Some expenses listed as fixed on the worksheet may actually be periodic
expenses for you. For example, instead of paying your auto insurance every
month, you may pay it every quarter.
After you've calculated total annual amounts for each of your debts and for
all your living expenses, enter them on the appropriate worksheet lines.
Figuring out the fritter factor
It's so easy to fritter money away, isn't it? A latte here, a happy-hour drink
or two there, lunch out with friends or colleagues, new clothes. Before you
know it, it's the end of the month and you don't have any money left. Where
did it all go? Most likely, you unconsciously frittered it away on unnecessary,
miscellaneous items. Each purchase may not have cost much, but together
over a month's time, frittering adds up to a significant amount. How much?
Let's assume that every workday you spend $3 on a latte. In a month, you
spend $60, and in a year that small daily purchase adds up to $720! If you also
spend $2.50 per day for a bagel or pastry to go with the latte, you're spending
$110 each month and more than $1,300 per year! Scary, huh?
