For several months, make lists of every outlay of cash or cash equivalent used to make purchases. Also, track all of your income for those months. When you are done tracking your expenses, make a list of each category of expenses, and write down the total amount you spent in that category per month (taking an average if you tracked expenses for two months). At the bottom of the list, write down your average monthly income.

With these figures, you can make a spending plan. Your list of expenses indicates how much you project spending each month. If the total exceeds your income or leaves you with little left over, you will have to cut back.

Once you have your spending plan, don't let it sit in your desk collecting dust or remain on the computer never to be revisited. You need to compare your actual expenses to your projected expenses in order to keep yourself heading in the right direction. One way to do this is to create 12 columns (corresponding to the months of the year) next to your projected expenses on your spending plan. Each day, record the amount of money you spend in the various categories for the current month. Keep a running subtotal so you know when you are approaching your total projected expenses for the month. Be sure not to exceed it and to leave yourself enough money to pay all necessary monthly expenses.

A spending plan gives you the flexibility to spend more than you anticipated in any given category or categories. Knowing the monthly "pot" of money you have to spend means that when you go over in one area, you simply cut back in others.

Shop Smart

Many people get into financial hot water because they fail to plan their shopping. Here are a few ideas to help you avoid this trap.

  • Don't grocery shop on an empty stomach. Most people spend as much as 50 percent more than they normally would when they grocery shop while they are hungry. Extra items purchased tend to be snack items and "junk food" associated with curing hunger pangs quickly. By shopping after you have eaten, you are more likely to buy only what you need.
  • Don't impulse buy. When you see something you hadn't planned to buy, don't purchase it on the spot. Go home and think it over. It's unlikely you'll return to the store and buy it. This holds true just as much for a $15 book as it does for a $1,500 computer.
  • Don't buy at a sale simply for the sake of it being a sale. Buying a $500 item on sale for $400 isn't a $100 savings if you didn't need the item to begin with. It's spending $400 unnecessarily.

Cut Your Expenses

Cutting your expenses is similar to shopping smart. Here are a few suggestions.

  • Shrink food costs by buying what you need on sale, purchasing generic brands, buying in bulk and shopping at discount outlets.
  • Improve your gas mileage by tuning your car, checking the air in the tires and driving less - carpool, work at home, ride your bicycle, walk, take the bus or train and combine trips. Using a credit card that offers a gas reward could also pay off.
  • Discontinue cable, or at least the premium channels, and subscriptions to magazines and newspapers.
  • Use your local library to borrow books, CDs and videos and to read magazines and newspapers.
  • Make long-distance calls only when necessary and at off-peak hours. Compare long-distance carriers to make sure you are getting the best deal. Consider using alternative phone plans such as broadband phones/VOIP or internet phones. If all long-distance carriers will charge you about the same, take advantage of checks (often around $50) sent to urge you to switch carriers. And finally, consider sending an email instead of calling long distance.
  • Compare different wireless service plans, or consider using a pre-paid cell phone.
  • Put the money you are saving into a savings account so you won't have to rely on credit when the next unexpected expense happens.