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Financial Advice

Tracking Your Expenses

This is the important first step to helping you understand your financial situation.

Over a decade ago, Morningstar's director of personal finance Christine Benz began her 30 Days to Financial Fitness series on with a quote from psychologist William James, who said there were three rules to change one's life: 1) start immediately, 2) do it flamboyantly, and 3) no exception.

Benz said James was right on the money with the "immediate" part. But does enacting lasting change in your life need to be momentous or flamboyant? "No," she said.

I would like start this Morningstar Money Challenge with another piece of advice from an old Chinese proverb: "The journey of 1,000 miles starts with a single step."

Most people who have achieved goals will tell you they've done so little by little, one small step at a time. My brother decided one morning that he wanted to ascend Mount Kilimanjaro, and he began to train that very evening by going on a walk. When I wanted to lose weight and get healthier, I couldn't abide by any form of exercise, so I stopped adding milk and sugar to my coffee. (I lost some of the weight and now drink way too much coffee, but that's neither here nor there.)

Benz points out that this same situation is true when you aim to achieve your financial goals as well. "The broad goals of funding a comfortable retirement, paying for a vacation or education, or buying a first home can seem daunting, particularly when you think through the actual cash amounts that you'll need to save," she says. "But if you break these broad goals down into smaller, more manageable tasks and tackle them one at a time, you can begin to make real progress."

To help people achieve their financial goals without getting overwhelmed, Benz wrote 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances. The book contains 36 separate financial-planning tasks, from creating a budget to selecting the right investments to crafting a retirement portfolio--each of which can be accomplished in a half-hour or less.

Taking inspiration from the book, over the next month we will help you complete one money-related task per day so you can get a bird-eye view of your finances and decide next steps. You don't need any prior experience or knowledge before you begin--all you need is a willingness to get a grip on your finances.

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We will start by helping you understand your financial situation. To do that, you first need to start tracking your expenses. This simply means figuring out where your money goes each month. The best way to do this is to look at your bank statements and listing out where your money is being spent.

"There are websites and financial software programs devoted to helping keep close tabs on your household's cash flows, but tracking your expenses can be as simple as jotting them down whenever you find yourself opening your wallet or writing a check," Benz suggests. "Group your expenses into one of two main categories: fixed (that is, spending that doesn't change and you can't do without) and discretionary."

She recommends that you plan to keep track of your expenses for at least a month; that way you can identify patterns in your spending and zero in on your problem spots.

"Examining cash flows in this way is the first step in creating a budget that aligns with your priorities and the realities of your life," she says. "You may also find that tracking your expenditures will have the salutary effect of causing you to think twice before spending money on things you don't necessarily need."

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