Ever wonder where all your money goes? It can be easy to spend a few dollars here and there on non-essential goods, but over time…these costs can and will add up. That’s why it’s important to identify your spending hot spots so you can reclaim your cash. The theory is that identifying those areas of financial vulnerability — the products and services upon which you have demonstrated a proclivity for spending the most money — is the first step to addressing them.

ALSO READ: What is Bankruptcy?

For more help on this topic, check out the Building Money Saving Habits course.

Keep Track

It’s critical to review your credit card statements and receipts to track where your money went. Once you gather several months’ worth of data, its time to start sniffing out patterns. Eventually, you’ll be able to isolate the categories where you spend the most. Some unavoidable costs just have to be absorbed but you may find yourself saying “I spend that much on cat toys!?!?”

Now you’ll not only be able to identify your spending hot spots, but to rank them too. This is made even easier by using a sweet budget tracking tool called Mint. It’ll help you focus your cost-cutting efforts by tackling the biggest problem first.

The Secret: The 50/30/20 Rule

Before tackling your specifics, look to implement the 50/30/20 method. This rule takes some of the hard-core challenges out of the ugly task of finding out how to budget by providing a compassionate set of guidelines to go by.

Here, your needs are allotted 50 percent of your after-tax expenditures. These are essentials, like your rent, utility bills, food, medications, minimum credit card payments and transportation costs.

Cap your wants, meanwhile, at 30 percent. Discretionary spending encompasses those small pleasures that enhance your life, such as movies, concerts, cable and nights out at the pub. Obviously a person’s wants list could trail on endlessly (who doesn’t want a month in Tahiti?); but if you want to save for the possibility, you must hold the ceiling at 30 percent.

The 20 percent in this directive is to devote at least 20 percent of your after-tax income to your financial goals. Here, you pay down (more than the minimum requirement of) your debt, bulk up your savings, add to your retirement stash, launch an emergency account or start saving for a down payment on a house.

If it helps, set up three accounts according to the 50/30/20 algorithm and stick to it!

The Standard Categories

Conventionally, the biggest spending classifications are as follows: home and living; food; entertainment, celebrations and vacations; and body and personal care. Yours might differ, however, and you need to be honest with yourself about what your biggest weaknesses are. If you’re a particularly avid collector of electronic gadgets, for example, or are such a fan of your pooch you can’t help but lavish her with expensive accoutrements, take note.

Home and Living

This is likely the spending category with the biggest appetite of all. Here, your budget groans with expenses like your rent and mortgage, utilities, home furnishings, home maintenance, banking fees and transportation costs.

If you spend more than 35 percent of your net income on your accommodation and costs associated with maintaining it, you’re spending too much. Consider cutting here by refinancing your mortgage or moving to cheaper digs. If none of these is an option, you’ll have to slash elsewhere.


This is likely your single biggest variable expense. Take care to include not just groceries in this bucket, but all the money you spend eating and drinking outside of the home. That means coffees, snacks, gum runs and every last of your restaurant meals.

brown bag of groceries

There’s a fair bit of room for movement in this arena, though the sting of associated deprivation can be rough. Cutting down on just two store-bought coffees a week, for example, could score you more than $400 a year in savings. Bringing your lunch one more day than you typically do, or suggesting potlucks with friends in lieu of pricey trips out can also add up to some serious sums.

Entertainment, Celebrations and Vacations

This feel-good spending classification can get unwieldy very quickly. The catchall for good times, this is where you’ll find everything from nights out with your peeps to spring-break jaunts to sunnier climes. Gifts clock in here, too.

Explore house swaps for vacations, or downgrade your accommodation needs by a star. And start focusing your gift-giving efforts on thoughtfulness instead of costliness.

Body and Personal Care

This category includes every single thing you spend money on to enhance your appearance. That means gym memberships, personal care products, haircuts, clothing and so on.


There’s a fair bit of elasticity in this spending category, too, so long as, again, you’re willing to forego a bit of the pleasure, it delivers. In some cases, your choices here a just a case of bait and switch. Drugstore shaving and skin-care products are way cheaper than their brand-name counterparts, you might run outside or exercise at home instead of signing on for the gym, and there’s a huge swath of choice in where you go to buy your haberdashery.

Emotional Shopping

Often, your emotions are the biggest enemy to your ability to stick to a budget. That’s why identifying the emotional triggers for your spending impulses is paramount to staying on target. Behavioral finance proves that human beings are, by nature, irrational. Are you spending in an effort to relieve tension, maybe? Boredom? To reward yourself for enduring some ordeal? Or are you making a link between your worth as a person and those material things you’re able to amass?

If your inner plumbing efforts reveal your self-esteem to be tied up with your spending on the latest toy or fashion, tuck that knowledge away for regular reference. And if you think you might have a shopping addiction, check out 4Therapy.com’s compulsive shopping quiz to confirm the diagnosis.


One way to cut down on emotional spending is to avoid making impulse buys. The next time you’re considering a purchase, whether it be in the flesh or on line, give yourself 24 hours to mull it over. You’ll often forget about the object of your affection as soon as you leave the store or flip to another web page. If it helps, keep a wish list of the items you’ve resisted buying so that you can return to them when you come into some cash or ask for them on your birthday.

You might also limit your exposure to what’s out there vying for your money on the premise that the less you’re aware of what’s available to buy, the less likely you’ll be to develop a sudden need for it. So unsubscribe to the rivers of advertising that stream into your inbox every day or download a program that prevents ads from appearing on your screen.

Remind Yourself

Scribble yourself a note to keep your reasons for introducing financial responsibility to your life front and center. Write, I’m getting serious with my money because and then fill in the balance with something meaningful to you, like “I want to visit New Zealand” or “I need to finally kill that student loan.”

The best budgets are flexible, personal and always subject to adjustment. Having identified the what and where of your personal expenditures, you can start to unravel the why.

how to budget

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