Before you can make a budget, you need to know where your money is coming from and where it's going. It's not enough to guesstimate your expenses or to set draconian limits on yourself when it comes to purchases. Saving your receipts for a set period of time lets you see exactly where your money is going. It also gives you an idea of where you can cut back if need be.
When it comes to tracking expenses, you have two options. If you are meticulous and detail oriented, you can record each purchase on a spreadsheet or in a little notebook. The other option, saving your receipts, requires the least amount of work on your part. You don't have to remember to dash home and write down what you bought and how much you spent. Instead, you can set the receipt aside in a safe spot until it's time to review or create your budget. To be effective, save receipts from all types of purchases for a couple of months: groceries, dinner and drinks, movies and entertainment, gas, and discretionary purchases such as clothing.
Low Tech Method
The simplest way to hang on to your receipts is to sort them by category and place them in a small filing box, such as the type of box you might use to sort coupons or recipe cards. If you want something a little bigger and more colorful, try using a separate file folder for each category of receipt. For example, a purple folder might be used for receipts from grocery shopping, a green folder for receipts from meals out, and so on.
High Tech Method
If the idea of storing tiny slips of paper for a month or more horrifies you, turn to higher tech methods of hanging on to your receipts. Invest in an inexpensive scanner and scan each receipt into your computer. If you get really into budgeting, you might want to invest in a scanner that's specifically designed for receipts. Some scanners include software that lets you search for the information on the receipt or sort your receipts by type.
Going Through the Receipts
Your receipts will only help you budget if you actually refer to them. If you never look at them again, you'll just have piles of paper or computer clutter lying around. At the end of the month, go through your receipts by category. Add up the amounts for each category, using a spreadsheet or a simple notepad. Next, add the total to what you spend on rent or mortgage, utilities, car loans, insurance and other fixed expenses each month. The final sum should be less than your monthly income. If it isn't, review the receipts to see what you are spending frivolously on. Cut back on non-essential items until you have a budget that not only lets you cover your expenses each month, but also leaves enough money left over for savings.
What To Keep And Discard
Once you're finished with the receipts, you can discard the ones for items that you no longer have, such as receipts from the coffee shop or supermarket. Hang on to receipts for expensive purchases, such as a televisions, or receipts for items you can deduct from taxes.