Ever since I earned a stipend for graduate school, I have used a budget to let me know how much I could spend. The categories included "rent", "groceries", "gas", "bus pass" and "cable". I would save a little money, but would be surprised by expenses like a birthday gift or my car insurance.
My credit union offers various free seminars, and I noticed there was one on creating spending plans and signed up for it. This seminar was an incredible eye opener for me. For instance, the people leading the seminar encouraged the attendees to create categories both for known expenses like rent and utilities, but also for irregular expenses like gifts. And instead of having to raid my savings account every time the car insurance bill was due, I could allocate money for it every month. These sound like simple steps, but attending a seminar on how to create a spending plan was just the catalyst I needed to get my spending under better control.
To determine where the money was going, I and the other attendees were told to keep track of expenses for at least two weeks, a month if we could do it. A worksheet broken out into categories like this is helpful. The instructors recommended posting the worksheet in a prominent location to be sure we would write down the expenses every day. For example, as I tallied the various expenses on my worksheet, which was taped to a door in the kitchen, I could see how those runs to the vending machine added up and sabotaged my ability to save money. Since I only had a food category of "groceries", the eating out and snack portion came from money I designated for savings. However, the amount allocated never made it to my savings account or if it did, it was quite diminished.
I did keep track of my expenses for three weeks and worked up a spending plan. Prior to the seminar, I had 11 categories in my spending plan; after, I had 20. I was a homeowner about a year after the seminar before I learned to to "pay myself first" and automatically transfer the money I wanted to save into a separate account. Regardless, once I had the spending plan, the additional categories really helped tame my spendthrift nature. Now I had money designated for clothing, car insurance, car maintenance, gifts and eating out. Once I added automatic transfer into a savings account, I not only kept within my plan, but the savings account started to add up quickly.
Since I bought a home I knew I could afford and started on an automatic savings plan, I found homeownership was a lovely addition to my life. Writing out the mortgage check every month is not onerous (even if mowing or shoveling snow might be) and has helped enforce greater discipline on me.
A spending plan is not set in stone either. I have adjusted mine as my needs changed or expenses have increased. I was able to save money for a trip to Germany over the course of a year after figuring out where I could take a few dollars in several categories. It was a pleasure to know I had more-than-sufficient funds for my first overseas trip. Currently, I am being stubborn about increasing the amount of money allocated for "gas", but as my health and dental insurance expenses increase starting January 1, 2008, I will need to reevaluate both my categories and the allocated amounts.
I encourage you to put together your own spending plan. And yes, that does mean when the money runs out in the category, no more spending! Really examine how you spend your money and especially if expenses add up to more than income, see where you can decrease the amount of money (e.g., eat out less often). Ensure you are not spending more than you earn first on paper and then put the plan into practice. I take a few minutes every day to subtract the amount of money I have spent from the relevant categories. Then I know that I only have $5.34 left in my grocery fund to spend for the rest of the month and I will probably need one more gallon of milk in that time. No potato chips this month!
If personal finance books are not your favorite reading material, I encourage you explore the web site of your banking institution. My credit union has several seminars a year on topics from budgeting to long-term care to retirement planning. I have attended several and all have been helpful to me. It is nice to ask questions of real people, not possible with a static book. There are also many resources on the web including blogs, that may be useful in your quest for financial control.