Step Two: Figure Out Why
Student loans, mortgages, and medical debt aside, most of us are in the red because of compulsive, or even thoughtless, spending. "Ninety percent of financial trouble is behavioral. We can do the math on credit card interest, we know it's bad to carry a balance," says Kofke. "But most people don't realize what they're spending on day-to-day expenses." This is what Kofke calls the latte factor — you buy fancy coffee a few times a week and before you know it you're spending hundreds of dollars a year on something you could make at home for pennies.
The best way to figure out what you're spending — and what can be cut — is tracking every last item you buy for a month. Yes, it's tedious, but adding up the numbers at the end of the 30 days can be a revelation. Personally, Kofke likes the old pen and paper method of noting expenses, but apps like Mint or Level Money will also help you keep track.