by: Remie Longbrake | published: Dec 15, 2019
Don’t know where your money goes? Here’s some great tips!
As a good exercise, list out where your income went last month. You can reference your checkbook, that is if you keep a log. You can also reference your credit card and bank statements. Write everything down, all the bills, groceries, gas, lunches, etc.
Likely, you biggest expense is your house. Yes, that is an expense, that is unless it makes you money. I hear this all the time, I have equity! Perhaps, but all the equity is just sitting there, so what good is it? Second on most peoples list are car payments. Again, this is an expense. Now you can loan it out and make money, just like your home, but realistically most people do not, not saying you shouldn’t however.
How about those utilities? Yep, add those in too. Unless they pay themselves, which is unlikely.
Groceries, lunches, that extra coffee each day, yes and yes!
So once you list everything down, look at all the extras you spent money on. You’ll probably be surprised. With the Internet making buying so easy, with a push of a button, stuff just comes right to the door. The question becomes, do you need the stuff for one, and how is that stuff making you more money?
If a good portion went to a large purchase, you’ll know the answer right off the bat. I know for me in my earlier days, I had stuff coming in all the time. I learned over time, that it was nice to have the stuff, but in reality it wasn’t adding value to my life, it was actually taking it away, because that money I was spending wasn’t going to buying assets and therefore taking away from my quality of life and my goals of being financially independent.
So after you list everything, see where its going. Ideally it should add up to the balances on your statements, not accounting for interests of course. If you are unable to account of some money do some investigating and find out. I run across this all the time with clients. Being they think they spend $100 dollars over the last month for entertainment and once we review the numbers it’s actually $300! Times that by 12 months and whoa!
Not saying you can’t have fun for entertainment, but know your limits and plan ahead. This is crucial if you are going to meet you savings goals or even retirement. Truth is most people live paycheck to paycheck. It’s because not due to making to little, it’s because they spend to much.
If you have no idea where the money went, is absolutely counter-productive to just about any financial goal you can think of. Most people want to take vacations, upgrade appliances, send kids to college, but most fail because they fail to plan. Have you tried, and failed, to force yourself to budget? Do you think you’re just no good at managing your money?
All you need is the commitment to not cave to your spending habits. A spending record goes a long way
What’s a spending record?
A spending record is a record of how much you spend, when, and on what. This record can be as simple as jotting down a few figures in your diary or as complicated as a spreadsheet with rows and columns for every item you purchase and the precise time of day. For most of us, something in between will suit just fine.
Creating your spending record.
Either in your favorite spreadsheet or on paper, draw up a grid with these categories as column headings:
Bills (rent, electric, gas, water, rash, car payments, etc)
Groceries (anything you buy to eat/drink at home)
Household (toiletries, cleaning stuff, domestic appliances)
Travel (bus, train or plane fare, gas, hotels)
Entertainment (books, magazines, movies, meals eating out)
Misc (anything else, i.e. buying gifts)
Interest(How much interest you pay)
Taxes(Yes, it's important to know)
You might want to include more detailed categories, such as “Lunch” if you tend to buy lunch out, “Charity” if you give regularly to charities or your church, “Loan repayments”, “Studying”, and so on.
Starting on the first day of each month, write in the first column, “Date” then put each day on a separate row:
Sun, Dec 1st
Mon, Dec 2nd
It’s up to you whether you fill you complete this on paper or on the computer. The advantage of using a spreadsheet program is that you can automatically total your spending for the day/week/month, or your monthly spending across different categories. But you might find you’re better at regularly filling in a paper records as you can easily carry it with you, although you don’t have to.
Filling in your spending records
Each day, or at a very minimum each week, sit down and enter what you’ve spent into your record. Put some details that will be useful to you when you look back over the record, that might mean having a “notes” column if you’re using a spreadsheet on your computer. For example, if you’ve entered a figure in “Entertainment”, you might want to record exactly what you bought.
Enter large bills on the date which they go out of your bank account. This will help you when you’re looking at your cash flow for the month, which is how much left over.
There are some occasions when it’s very hard to keep accurate track of spending, for me, this is usually at a bar or restaurant. The best method is to take out a set amount of cash at the start of the evening, and only spend that, rather than using a card. Afterwards, you can see how much you’ve spent at a glance.
At the end of a week…After you’ve been keeping your spending record, think about whether you’re spending habits have been affected at all. Are you more conscious of what you’re spending, because you’re writing it down? Were there things you were tempted to buy, then didn’t? Just like keeping a food diary to track your eating, the very act of writing down your spending can help you reduce it.
At the end of a month…Once you have a full month recorded in your log, start doing some analysis. Have a look at
What you spent in total that month
Which category was the most expensive and which was least expensive
Any unusual expenses (weekends away, parties, large payments)
Most people are surprised how much they spend in certain categories. You’ll probably be able to identify areas where you could save money; perhaps cutting down on entertainment items, or buying your groceries more economically. If you have to travel most days by bus or train, a monthly ticket will almost certainly work out more cheaply than a daily one.
Challenge yourself to save $50 next month – figure out where you can cut back in order to afford that, and put that $50 aside into a wealth building account or savings as you may call it. The biggest part is to separate a portion from your regular checking account, which is easy to withdrawal from.
Once you get in the habit of saving, take the next step and contribute a set amount monthly, ideally if you can transfer it from your paycheck directly to your wealth account, that is ideal. This money doesn’t have to be illiquid, but it must be separate.
From there, next step is to be conscious of your financial priorities and how it related to your spending. To share your views with your spouse so you are on the same page is really important. A lot of us are either spenders or savers, perhaps it in our DNA. Hard telling, however, what is key is knowing where your money is going, to spend wisely, and have a plan going forward.
Have you ever kept a spending record? Did you find it effective in helping you to spend more consciously, save up, or understand where all your money was going? Need help getting started? Let us know!