Give your budget a check-up

On July 22nd, Tanya Ryno posted a great list of how to save money in the house simply by doing a few little things. It's amazing how those little things can add up. Leonid Shalimov on CashBulge posted a few more ideas on saving money around the house. The key to saving money, regardless of your financial situation, is to be aware of your spending, aka Cognitive Spending

Cognitive spending will help you see the bigger picture and, ultimately, will help you see how honest you are being with budgets. There are two major things you need to do to consider yourself cognitively aware of your spending: budget review and purchase awareness. In the following post, I'll walk you through how to be fiscally responsible, yet reasonable.

Budget Review
When was the last time you took an afternoon, busted out all the bills, payroll and bank statements, and a calculator to update your budget? With prices of necessities fluctuating (gas, car insurance), you should really do it every year or at every major life event (kids off to college, marriage, etc.). However, there's more to it than looking at your income and budgeting from there. There's a better, more honest way to reviewing your budget.

Here's what you do:
1. Take last month's bank statements and add up all the spending following categories:

• Groceries
• Dining out (include those trips to Starbucks in here)
• Entertainment (i.e. movies, concerts, books, etc.)
• Fixed bills (cable, Internet, mortgage, car insurance, etc.)
• Fluctuating bills (energy, water, etc.)

Make sure every transaction is accounted for on your bill. In other words, make sure you've divided each transaction into a specific category. Change the categories if you want or need.

2. Take last month's credit card statements and do the same thing.

3. Match and add the categories. This will give you a total amount you spent in the month.

4. Review your spending. You will be surprised where you spend most of your money, and you'll be surprised at where you spend most of your money. Bet you didn't realize going to Starbucks five times a week can cost you about $60 a month. That's half my car insurance for both cars!

5. Budget cuts: can you cut anything down? Be honest with yourself here, but be proactive about your savings. The money won't magically come just by making a list of your spending. You have to commit to saving in little areas.

6. List all incoming money for the money.

7. Draw up a new budget based on all incoming money and your new list. Use your spending categories to guide your decisions. Don't over budget! Don't plan on getting a bonus, or working overtime. Base your budget on your reliable, fixed income. If you don't already set money into a savings account, start now! Even if it's only $5 a month. $5 a month is $60 a year - that's the price of one child's ticket to Disney World for an entire day! $10 a month is $120 a year - that's enough to get you a membership at your local rec center or a Thursday night in Vegas hotel!

8. Implement the new budget. Most people forget this. They let themselves overspend because of any number of reasons: stress, fatigue, or just plan rebelliousness. Regardless, be the commander in chief over your life. It's you doing the spending, so being lenient will only hurt...well, YOU.

Purchase Awareness
Purchase awareness is just what it sounds like: being aware of your purchases. This may sound tedious, but it works miracles on your pocketbook. How does it work? Easy. Before you by anything, and I mean anything, ask yourself - and answer yourself - the following questions:

• Why am I buying this?
• Do I really need this?

The key to purchase awareness is not to talk yourself into buying something. Don't justify the purchase to yourself, just answer the questions simply. We are amazing at talking ourselves into anything, so don't argue with yourself. Go with the answer you know to be true.

Initially, you might find yourself getting frustrated over purchase awareness. Your frustration will likely come from the sense of responsibility and the sadness that you may not need what you want to purchase. Every single one of us wants to be able to buy things; it comes from the desire for immediate gratification. However, you need to focus on the pride that comes from self-restraint, not the false sense of loss from not buying something.

Also, be aware that psychologists recognize a disorder called Compulsive Shopping Disorder. Believe it or not, it's considered an Impulse Control Disorder and has many causes. In 2002, Al Benson wrote a book called I Shop, Therefore I Am: Compulsive Buying and the Search for Self that addresses the disorder with suggestions on how to combat it. If you find yourself unable to control your overspending, talk with your doctor or find a counselor who specializes in compulsive disorders. For more information and a great article on how to help a loved one through it, see MSNBC's article "Is Compulsive Shopping Eating Up Your Wallet."

So, be proactive about your money spending. No one else is spending the money but you, so be aware and take control of it. If you're in debt, contact a financial advisor to help get you out. It's much easier to get into debt than to get out. As Jim Rohn put it, "we all must suffer one of two things: the pain of discipline or the pain of regret and disappointment," and discipline, after all, is what makes us human.