by a.b.

The saying goes: “To know where you’re going, you have to know where you’ve been.” In Step 1, you decided something isn’t right in your life. You set a goal, a reason why you want financial freedom, you committed, and you involved the relevant people in your life. Now comes the painful part: financial and physical inventory.

Many personal finance bloggers and experts will tell you to wait over the next month, collect all of this data, and then take inventory. No way! First off, you’ve lit a fire under your own butt and I want to take advantage of the momentum. Secondly, if you know you’re being watched (even by yourself) you will unintentionally cheat. I don’t want you to look at your data at the end of next month and say, “Gee, I’m not doing as bad as I thought.” I want you to look at your situation right now, honestly, and frankly, and say, “Crap, I didn’t realize I was spending that much on X, Y, or maybe even Z.”

So, right now, go and get all of your bills, receipts, and statements from the past month (including ATM receipts, pay stubs, and deposit slips if possible). At the moment, we’re looking at total numbers, so take a spreadsheet, and put the following categories at the top:

  • Housing (Rent or Mortgage, Applicable Insurance & Taxes)
  • Utilities (Electricity, Gas, Water, Sewer, Trash)
  • TV
  • Internet
  • Phone
  • Cell Phone
  • Groceries
  • Eating Out
  • Entertainment (Netflix, Movie Tickets)
  • Medical (Health Insurance, Prescriptions)
  • Auto (Loan, Insurance, Gas)
  • Student Loans
  • Credit Card Payments
  • Charitable Contributions
  • Wasted Cash

Start going through your receipts and statements, noting what you spend each month under the appropriate categories. ATM receipts and Less Cash Received notations on deposit slips* with no corresponding purchase receipt, get noted as “Wasted Cash.” Be careful not to mark down the same purchase from a receipt and your statement. Now the painful part: total the columns. This is your current monthly spending allocations.

On another page, write down your total debts: each student loan, auto loan, and credit card total, the accompanying interest rates, and the monthly payment. This is your debt inventory.

Lastly, go through your house room by room, listing what you own, down to how many pairs of socks. How many times have you bought something, only to come home and realize you had two already? While you are going through your possessions, note if anything is getting worn and in need of upcoming replacement.

After completing this step, you will know what you’re spending your money on each month. You will know how much you owe, you will know what you have, and what you will need shortly. This means you have a place to go from. Think of this as ground zero for your new life.

*This information can be generally be determined by taking your pay stub minus your deposit amount.