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If you’ve already completed the first step toward getting out of debt, the next step is to begin tracking all of your expenditures. Start by recording every single thing you buy, no matter how small. (Even a 1 cent gumball counts.) This may seem extreme, but chances are you’ll be surprised at how much of your money is spent on the little things — and the only way to find out for sure is to track every single expense.

What I did was entered all of my non-cash transactions into Quicken each day, and wrote anything I bought using cash down in my planner. (Quicken is nice because you can categorize things, which will make step three toward getting out of debt easier.) I began making categories and sub-categories (for example, things like Housing: Mortgage, Housing: Maintenance, Entertainment, Medical: Doctors, etc.) But you can do this using a paper notebook or a spreadsheet.

Ideally you should do this for a month to get a good sense of what your regular expenses are. If you get impatient (like I did) and have some of your old financial records, you can always go back through them and see what your previous month’s expenses were. BUT — remember, if you do that, you won’t be seeing ALL of the money you spent. And it’s really important to find out where it all went.

Once you’ve tracked for a month, you’ll be ready to move on to step three, which will explain how to set up a spending & savings plan that involves paying down your debt. I know this seems like a lot of work, but it’s important to get a good foundation for your finances — and that’s the most important part of a serious get-out-of-debt plan.

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