Calculate Your Cost of Living
Before creating a budget, it's important to know what your current cost of living is. This will serve as a starting point when you decide the areas you feel like you need to trim; or let you know which areas you have a good handle on.
First, gather all the financial information you have access to that will shed light on where your money is going: Credit card receipts, check/debit card registers, bank statements, store receipts, spending logs, etc. The more data you have, the better. It's a good idea to go back six months or even more. This way, you can create more accurate monthly averages.
Use the financial information you collect to get a six-month average of spending to determine your average cost of living. If you don't have six months of data, do the best with what you have in calculating your averages but try to be as realistic as possible.
Segment spending into general categories: clothing, eating out, kids' extracurricular activities, auto repair and maintenance, gas, groceries, entertainment, phone/internet, utilities, mortgage, and so on. Don't forget about categories that may not be mentioned – you may have unique categories of your own depending on your own situation. Also, keep in mind that if you use a lot of cash, your expenditures may be harder to track. Try to account for that as well. The more accurate you can be with this step, the better picture you'll get of what your spending actually looks like.
For example, this may be what your gift expenditures look like:
July 2010 $50
August 2010 $0
September 2010 $100
October 2010 $100
November 2010 $50
December 2010 $500
Once you complete this cost of living worksheet, you'll see how expensive your life really is. Having that information will help you budget accordingly and trim spending where necessary. We've included a template you can use to help you calculate your own family's cost of living.
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