In theory, money management is simple: spend less than you earn, save and/or invest the balance. In our case we couldn't begin with a monthly income figure. Neither Derek nor I have regular incomes. We took another approach. We decided to record everything we spent; literally every penny. We thought that if we knew our monthly spend and our annual spend we would know where our money goes. That’s where we decided to begin.
I wanted us both to have a curious awareness of where we were spending/giving every dollar. The system we set up several years ago has continued in our household. It works for us! On the 1st of every month we place a large brown envelope on an open shelf in the living room. On the envelope we record what we spend and place the corresponding receipt into it. Figures are entered under headings. An average month has these headings: Groceries, Restaurants, Gas, Car, Utilities, Health, House and Yard, Entertainment, Beauty, and Gifts. Generally, two months in any one year have additional headings of: Clothes, Vacations, and non-recurring categories. At the end of every month we add up totals and pop them into a spreadsheet where we can see both monthly and annual trends. The spreadsheet has other columns such as Property Tax, Phones, Medical Insurance, Home Insurance, Internet–stuff that might be an annual fee or bills that are regular and fixed amount monthly that must be paid. The large brown envelope is the discretionary spending that must be managed consciously and wisely. It’s an exercise well worth trying out.
It's fun if you begin by guesstimating what you believe you spend in these categories in a regular month and then start to record it. We were shocked by groceries and eating out costs. We decided to only visit restaurants as a treat when we became more conscious of our spending. We stopped decisions to eat out as a solution to; "I'm too tired to cook." When we did go to a restaurant we didn't order that beer or glass of wine which reduced the spend also. We made some changes and cultivated new habits. For example, we rarely watch TV, so we turned off cable. Netflix is enough. We don’t subscribe to Amazon Prime, subscription TV or radio channels. We changed our phone plan and always keep within the (minimal) free data plan. We found a cheaper internet provider. We added up the savings that these and other cost cutting strategies yielded and we directed that sum towards our mortgage. We cleared our mortgage 18 months sooner than planned.
It's empowering when your money goes where you consciously direct it to go. Try it and see.