Estimated time: 1-2 hours
Materials: financial records, computer/financial program optional
Project difficulty: easy

Now that you have your personal balance sheet, we need to see how you got here and where you are going.  The only way to do that is to somehow track your money – primarily your expenses.  Remember not to let yourself be carried away with shame, guilt, or fear.  There is nothing you can do about the past and you won't be able to change the present unless you let go of those negative emotions and feel good about the progress you are making now.

If you aren’t keeping track already, I think the best first step is to sit down with the last few bank and credit card statements and a calculator, or better yet a spreadsheet.  If your bank allows you to download your transactions as a “csv” file (that’s comma separated value) do that and open it in excel or openoffice.  Go line by line and add things up by category.

Typical categories include:
Income categories
Interest Income
Other Income
Expense categories
Auto: Gas/Maintenance (you can also include insurance here – that can be handy when evaluating the total cost of operating car)
Bank fees (Finance charges, ATM fees, late fees, etc)
Cash (I use this to track the physical cash I spend – usually I try to avoid cash transactions so the amount isn’t large enough to worry about allocating to expenses)
Electronics (anything computer or gadget related goes here)
Entertainment (movies, netflix, cable, live music should go here)
Gifts (to track gifts given to others)
Home improvement/repairs
Household supplies
Insurance: Health/ Life/ Auto
Medical Expenses
Miscellaneous (Like adding to your Stoic library…or whatever)
Mortgage or Rent
Pets: Food/Vet/Toys
Utilities: Electricity/Water/Heating

After you add everything up, take another look and figure out which are recurring stable expenses (like your internet bill), recurring but unpredictable expenses (like your electricity bill) and which are one-time or infrequent purchases (like new furniture).  This will be the information you will use for creating a budget if you don’t have one.  Now, if you were doing all of this manually you might despair at the thought of doing it each month.  The good news is, there are a lot of different programs out there that can help you out.

I personally tried Mint for a while, but it bothers me that they had all of my bank passwords.  I know they have all sorts of protections but it just made me uncomfortable.  So alternatively, if you want a program that is on your computer where you download or manually input the transactions, there are a variety of options for that also:
Quicken (The most popular software by far, I don’t like it though since you always have to upgrade)
Gnucash (free and open source!)
Homebank (also free and open source and my current software of choice, look for a review sometime soon)

The most comprehensive list of both types of programs can be found on Wikipedia here.  Now, you might ask yourself, why did I suggest going through the hassle of doing things “manually” first?  I think it’s important to know the basics before you go looking for a software solution to your problem.  Remember when you had to learn how to multiply before you got to use a calculator in school?  You want to know the mechanics of tracking your spending and then figure out a system that will work for you.  Whether you stick with pencil and paper, keeping track on your own spreadsheet, or have transactions automatically downloaded and categorized on your computer or the web, you will be happier (in the long run!) knowing where you are spending your money.