Next, figure out how much you spend in each basic category. This list can get you started:
- Child care
- Entertainment and dining out
- Subscription services
- Household maintenance
- Gifts and charity
Be sure to write down all monthly payments, including rent, auto and student loans, credit card minimums and anything else you regularly owe. It may help to review some previous bank statements and bills — at least six months' worth to get an accurate average.
Then, add up all your expense categories and subtract the amount from your income. If the remainder is positive, you can then decide where to allocate the extra funds. You might pay off a credit card early, save more for retirement or, yes, even spend a little more on fun.
But if the remainder is negative, then you may need to cut back on your spending. Start by reviewing the expense list again. Get rid of things you can live without. You might have a subscription service you rarely use, for example. Or you may be able to find a cheaper alternative to other expenses, like cell phone contracts. Cutting back doesn’t have to be forever. A temporary cutback today can have a significant positive impact on your finances in the future.