The first step to cutting your living expenses and saving more is to learn exactly how much income you take in every month and exactly how much you're spending. Don't make the mistake of thinking you know these numbers. Unless you actually write down every dollar you earn and spend, you're likely to be way off. I know I was surprised when I started keeping track. Was I really spending that much money on groceries? It costs me how much to commute to work? Even though I thought I had a handle on it, I had no idea what I was spending every month for various types of expenses.

The only way to know where you stand is to develop a tracking system. There are many ways to do this but here are two easy examples to start with.

Buy a small notebook to keep in your purse or pocket. Write down everything you earn or spend, along with the category it falls into. For example, you'll likely have categories for groceries, eating out, gasoline, and rent or mortgage. How you split up the categories is up to you. Just make the categories specific enough to be meaningful. If you have an iPhone, iTouch, or a similar device, download a budgeting application. The one I use is called AceBudget and it's great. You set up your categories and your budget allocation for each. Then you just enter each expense or income as it occurs. Don't worry about getting the budget allocations correct. At first, you should only track what you spend but don't necessarily to to control it through a budget.

At the end of each month, I transfer my data to an Excel spreadsheet on my computer. I have it set up so that the difference between my income and my expenses is calculated automatically and recorded as savings. I then take this amount of money and transfer it to my savings account. I also have a line chart set up that shows my income and expense trend over time. It's really powerful to see it visualized because the space between the two lines represents savings. Hopefully, this will grow over time.



If you don't have Excel or simply don't want to take this step, just calculate the difference between your income and expenses and transfer that amount to your savings.

