This is a really boring tip but quite important:

Write down all your expenses for a specific period of time (try doing it for a couple of months).

Keep track of every red cent you spend. Every cent.

Then categorize all your expenses:

Fixed: all the thing you can not quickly change: housing, car payments, utility bills, savings etc. Of course, these things can be changed eventully if you see they are eating too much out of your budget. Incidentally I have read that you should only be spending between 25-29% of your gross income on housing (mortgage, taxes and insurance)….

Variable expense: all the things that you have direct control of: food, clothing, entertainment, gifts etc. etc. This is the area that gets interesting! You may be amazed at how much you eat out, how quickly you spend on unnecessary items, how you spend more on clothes than you do on housing! Whatever your tendency or pattern is – you need to know it!

Writing things down helps you be more conscious with your money – makes you more aware of how you spend it. You may be shocked that if you just cut out one unnecessary expense you could save a lot!

David Bach calls this the “latte effect”. If you calculated how much you could save by not having a latte, or making it at home, or not drinking one at all (like in our situation:)) and then saved that money instead – you will instantly have found a great little savings strategy (and maybe even can boost your 10% savings plan!).

The first time I tried it – I was amazed at the little things I learned: How much did we spend eating out??? How much does it cost me everytime I step into a Walmart??? How much money is going towards “wasted” things??? It quickly made me think about where I shop, how often I shop, and when and where we eat out.

I’m really not into “depriving” myself (sounds bad I know). But I’m not. BUT….I also know that I enjoy going out for dinner with my husband just as much as when we spend $30 on dinner then when we spend $100 on dinner. I enjoy a movie with my kids when we rent it (although with Blockbuster gone – where do you rent movies anymore…??) and buy some Kernels popcorn with a sleepover in our family room for $20 then I do at the movie theatre for $80 (no movie is that good in my opinion!) So, I’m not suggesting to deprive yourself, just be conscious of how much things really cost you – and then ask yourself – is it really worth it?

Try it and see. Don’t be discouraged if you see how you make unnecessary or over indulgent purchases that you can’t afford. Acknowledge it and start over.