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Where, Exactly, is Your Money Going?


If you find yourself short of cash by the end of the month, pay your monthly bills, or you haven't put any money toward savings or investments yet, you may start to think you aren't making enough money to support your lifestyle. This may be true, since it's easy to live beyond your means. But before you hit the panic button, try a 90-day experiment to see where your money is really going. Most people will find they are spending far more than they thought on unnecessary expenses, and with a little re-organization of the budget, their money will go further than they thought possible.

The 90-Day Experiment. You can conduct this experiment for any number of days, but it is recommended you start out with at least three months. During this amount of time, you should see all of your monthly expenses paid and several of your irregular expenses as well. This will help you get the complete financial picture. If you only run the experiment for 30 days, you won't have an accurate idea of all of your expenses and obligations.

During the experiment, you will keep track of all incoming and outgoing money to analyze carefully after the 90 days. Don't try to adjust your spending at this stage of the process--simply keep your notepad handy and monitor your cash flow for the full 90 days:

-- Use a small memo pad that will fit in your pocket or purse

-- Every time you spend money, no matter how insignificant the amount, jot it down in the notepad with the date and a description of what you purchased

-- Every time you receive money, no matter the source or how insignificant the amount, jot it down in your notepad with the date, amount, and description of where it came from

Analyze the Results. At the end of the 90 days, you will need to spend some time categorizing and reviewing everything you wrote down in your notebook. It's likely you'll find a number of unnecessary purchases.

Use a spreadsheet or another sheet of paper to move your expenses and income into three categories: things you have to pay in one category, including your savings or investments along with your home expenses, utilities, gasoline, or transportation costs, car maintenance, groceries; things you could do without if you had to, such as cable television, gym membership, a second phone line; and then a category for anything you buy but you don't really need, say, a new shirt because it was on sale, even though you have a closet full of them. Take a close look at your entertainment expenses: things like restaurants and takeout meals, concerts or event tickets and any other things you do for fun, and separate these into discretionary spending. Add to those spontaneous purchases that seemed insignificant at the time, like a pack of gum, a magazine, or a cup of coffee.

For expenses you record in your notepad that are paid quarterly or annually, such as taxes or insurance, translate their costs to a monthly expense. If you pay $3,000 per year, you would record an expense of $250 per month.

Add the expenses in each category to get an accurate picture of what you spend. If you are like most people, you will be surprised at the amount of money spent during a 90-day period in entertainment and spontaneous purchases. Maybe your irregular expenses will even be higher than you anticipated. Having an accurate list of everything you paid for will help you re-evaluate your budget. When you see how much you really need to spend in each category, you can better plan for what to do with your income.

Most people find the 90-day experiment to be an eye-opening process, and can find a number of expenses to reduce or eliminate to get their budget back on track.

Debbie Dragon is a contributor to, where she writes about personal finance, taxes, and banking.