• About
  • Mortgage Basics
  • $40K Challenge
  • Aunt Doris
  • Grandfather Says
  • Privacy
  • Archives

Len Penzo dot Com

The offbeat personal finance blog for responsible people.

Why You’re Broke: You Don’t Audit Your Spending Habits

By Len Penzo

Now that I’ve outlined a top-level job description for the household CEO it is time to begin breaking down each of those six top-level tasks in a little more detail.

The biggest reason most people always find themselves broke and continually in debt is because they are ignorant regarding where their money is going.

In order to start down the road to financial freedom, the first task of the household CEO is to figure out exactly where all of the household money is going. This task is important because a detailed audit must be performed if you ever hope to truly understand your household’s monthly spending habits.

To start your audit, you will need to have an accurate accounting of all of your income as well as every penny you spent over the previous month.

Keep in mind that in order for this task to be done correctly, you will have to do some meticulous tracking of all income and outgo. Start by collecting all of your bills, credit card statements, ATM withdrawal receipts, and your check book register.

You will also need copies of all income statements for the month. Remember that income can come from sources other than your employer paycheck. Other sources of income can include food stamps or other public assistance, unemployment or disability payments, child support and/or alimony, and social security and/or other retirement payments such as a pension.

You also need to remember that there are expenses that come up once or twice a year you need to account for but might not be covered in the bills and receipts you have collected from the previous month. These include: taxes, auto servicing, tires, license fees, birthdays and holidays, educational costs, vacations, and insurance premiums such as for guaranteed issue life insurance. Do not include taxes withheld from your paycheck, but you do need to include any estimated tax payments you make to the IRS.

At this stage of the game, all you want to do is compile all of the information regarding your spending habits over the previous month. In fact, it would be advantageous to compile this information over the previous three months to help give you a better idea for atypical deviations that might have occurred from month to month. The bottom line is the more information you can gather up front, the more intelligent you will be when it comes time to create your first budget.

The information you collect from this audit is necessary for making an accurate assessment regarding what money is being spent on needs and what money is being used to simply keep up with the Joneses.

My next post will provide a step by step plan on exactly how to do that, and also provide a sample worksheet that you can use to help you categorize all of your expenses.

If you liked this article, please be sure to subscribe to my RSS feed.

December 29, 2008

Trackbacks

  1. 8 Big Reasons Why You’re Getting an F in Personal Finance 101 – Len Penzo dot Com says:
    September 11, 2020 at 12:25 pm

    […] but it’s tough to save anything if you don’t know how much you can afford to save. So look at your expenses and determine exactly how much money you’re spending and where it’s […]

The Question of the Week:

How big is your home?

View Results

Loading ... Loading ...

Disclaimer

This site is for informational and entertainment purposes only, and the content herein should not be mistaken for professional financial advice. In fact, making investment decisions based on information published here, or any other website for that matter, is more than unwise; it is folly. This website accepts advertising in the form of monetary and other compensation; as such, topics of discussion are occasionally influenced by these advertisers. Sometimes, an article may also include affiliate links, meaning, at no additional cost to you, this blog earns a commission if you click through and make a purchase (for example, as an Amazon Associate I earn from qualifying purchases). Remember, you and you alone are responsible for the decisions you make in life, so please contact an independent financial professional for advice regarding your unique personal situation.

Sign up for the weekly Len Penzo dot Com newsletter
Len Penzo dot Com Delivered Weekly
Join more than 40,000 readers and fans who enjoy personal finance and macroeconomics with an offbeat twist!
Invalid email address
Thanks for subscribing!
Black Coffee: The Good Ol’ Days
Grandfather Says: The Continuing Chronicles of Elaine, Part 24
An Overview of the Most Common Student Loan Options
6 Ways to Fix Your Finances: Smart Tips for Resuscitating Your Bank Account
My 13-Year-Old Daughter Shares Her Financial Fears
Black Coffee: It Ain’t What It Used to Be
How Thinking Outside the Box Can Save You a Fortune
The Pros and Cons of Higher Interest Rates
Five Frugal Ideas for Fall Season Family Fun
I’m Not Rich, But I’m Financially Free; Here’s How I Got There

All-Time Most Popular:

  1. 1. 19 Things Your Millionaire Neighbor Won’t Tell You
  2. 2. Dear Friend: Here Are 41 Reasons Why I’m NOT Lending the Money
  3. 3. Why Your Expensive Luxury Car Doesn’t Impress Smart People
  4. 4. If You Can’t Live on $40,000 Annually It’s Your Own Fault
  5. 5. 21 Reasons Why Corner Lots Are for Suckers
  6. 6. 4 Smart Reasons Why College Isn’t for Everyone
  7. 7. 18 Fast Facts About Social Security Numbers
  8. 8. My Ketchup Taste Test: Upset! Guess Which Brand Topped Heinz
  9. 9. Why I Prefer a Spreadsheet to Track Expenses and Manage My Finances
  10. 10. Here’s a Simple Trick for Getting Credit Card Interest Charges Waived

Popular Now:

  1. 1. My Personal Journey to Financial Freedom
  2. 2. Why I Run My Household Like a Business (and Why You Should Too)
  3. 3. 5 Ways You Can Save Money on Groceries This Week
  4. 4. My 15th Annual Cost Survey of 10 Popular Brown Bag Sandwiches
  5. 5. 5 Frugal Tips for Family Fun During the Fall Season
  6. 6. Expensive 401k Mistakes People Make Every Day
  7. 7. 10 Ways to Get Fit for Little of No Money
  8. 8. The Ethics of Found Money: Should You Keep It?
  9. 9. Historical Gold & Silver Benchmarks for Wages and Commodities
  10. 10. 4 Good Reasons Why Some Quarters Are Painted Red

Copyright © 2023 Len Penzo dot Com · All Rights Reserved · Designed by Nuts and Bolts Media

© Len Penzo dot Com 2008–2023