Why Not Consider Wednesday: Why You Should Be Tracking Your Spending Part 2

Why You Should Be Tracking Your Spending- Part 1 discussed using a spreadsheet to track your spending and to make projections about what you may spend in the months to come so you could have an idea of what your expenses might be for the year. 

In order to facilitate this process, we have put a link on the right hand side of this blog.  If you click on: Track Your Spending Spreadsheet 2009 you will be directed to a spreadsheet that has been uploaded as a google document so we can link to it here.  You can click on File, Export, .xls and the document will be saved on your computer as an excel spreadsheet. Once this has been done, you can start adding figures in the boxes and calculating your own spending.

Note: the areas highlighted in Grey, Yellow and Pink are formula driven.  If you enter something into these areas, it will destroy the formulas and the spreadsheet will not work properly.  We would recommend staying away from these areas completely.

I use a similar spreadsheet, not only to track my actual spending but also to track my projected spending.  Here is what I do to distinguish between those dollar amounts that I have actually spent from those that I anticipate I will be spending.  I highlight the ones still to be spent in red.  At the top right of the excel spreadsheet you will see a paint bucket. Make sure you are in the box you want to highlight.  Now, click on the arrow to the right of the paint bucket.  This will allow you to select the color you want to use.  Now, the box will become highlighted in the color you have selected.  When you want to remove the highlighting, for instance, when you have paid the bill and the figure ceases to be a projected one and becomes an actual one, make sure you are on the excel box you want to remove the highlighting from, click on the arrow to the right of the paint bucket and select no fill.  This will remove the highlighting. 

I like doing this, not only because I can see what I expect to pay for things going forward, but, it also helps me make sure I have not missed paying a bill.  If I get to the end of the month and I still have items in red, I know that those items have not yet been paid.

This spreadsheet has been separated into two broad sections.  Section 1 which has one Total includes items that we anticipate you would be paying for on a monthly, weekly or even daily basis.   Section 2 has a Total Additional Costs for the year.  This section adds up items like insurance costs, doctor visits, clothing, one time costs (in other words, things that you don’t expect to pay every month but that you might have a bill for once a year or several times a year). 

At the bottom of the spreadsheet you will see a row entitled Total for the Year which has been highlighted in yellow.  This totals everything in the monthly categories so you can see how much you have spent in each of the categories at the end of each month. 

The very last row of the spreadsheet has an item entitled Grand Total for the Year which has been highlighted in pink.   This adds together the totals for section 1 and section 2 items in the spreadsheet to tell you how much you have spent for the entire year on all items.

There is a column at the end of the spreadsheet entitled Notes. I like entering notes into the spreadsheet to help me remember key purchases.  If after you have typed something in under notes you want to start a new idea (and put it on a new line) after you have finished typing the first note, hold down the Alt key while at the same time clicking on the Enter key.  This will take you to the next line so you can start typing something new.  Additionally, you can always make a short note in a box to the left or right of an item.  But this can get messy so be warned.

We hope this spreadsheet will be helpful and serve as a valuable resource.  Please note, nobody is perfect and although we tried to make sure that the formulas in this spreadsheet are 100% accurate, it is possible we made a mistake somewhere.  Additionally, it is possible that as you go along, you might change a formula by mistake.  So- we highly recommend doing some spot checks with a calculator at a minimum to make sure that the figures make sense, and/or just adding up months to make sure that the figures you have put in do indeed add up correctly- especially if you are relying heavily on this spreadsheet as a tool.

Now- you have the tools you need to succeed- so start tracking!

We have put a link to a partially filled out spreadsheet entitled SAMPLE under the Track Your Spending link.  I made up the figures in this spreadsheet and they don’t reflect reality.  The sample is really there just so you can see what the spreadsheet looks like when filled in.  You might want to take a look at the sample before you get started.

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Why Not Consider Wednesday: Why You Should Be Tracking Your Spending

How I became a Recessionista Before the Recession Started.

Last January, I decided to create a spreadsheet to track how much money we spent. While my husband initially rolled his eyes at my project (especially when I asked him every day- how much money he spent in each of the categories I created) we both learned a lot about our spending habits by reviewing our totals at the end of the year. However, we didn’t have to wait until the end of the year to learn some valuable lessons about where our money was going. The numbers on the spreadsheet told us a lot

This year we decided to continue to track our spending again. Here are some of the reasons why you might want to consider tracking your spending too.

Tracking what you spend your money on allows you to:

1. See what you are spending your money on
2. Make projections about what you will owe and when it will come due
3. Reduce stress from not knowing how much you will owe and when it will come due
4. Stop making purchasing decisions based on impulses, but rather, make them based on what you truly value and appreciate

1. What Do You Spend Your Money On?
There are generally two categories that people spend money on: fixed costs and variable costs. Fixed costs include things like the rent, a mortgage or car payments. It is usually pretty easy to list these items and account for them. Variable costs are items that fluctuate depending on usage. These are items like utilities, groceries, dry cleaning, and one time costs. One time costs are things like an unexpected hospital stay or a broken hot water heater.

In order to determine what you are spending your money on, you need to create or find a spreadsheet you can use and then enter information into it daily, before you forget what you have spent your money on.

Additionally, you need to make sure you don’t just enter all your variable costs into a category labeled miscellaneous. Indeed, if you are going to go to track your spending, you want to be able to see exactly where all your money is going. To be sure, you will need to have a category labeled miscellaneous. However, the less you put into this category the better. Some of the items you might want to pull from the miscellaneous category include: Dry Cleaning, Gas, Commuting Costs (ie the Bus, Train etc), Groceries, Take Out, Drug Store Purchases, Kids Classes and Toys, Entertainment, Babysitting, Cleaning Service, Travel, Clothing/Shoes/Makeup/Hair, Charitable Donations, Gifts, Taxes.

2. Make Some Projections
After you have tracked your spending closely for at least one month, you can start to make projections about what you will owe and when it will come due. Granted, you might not have a high degree of accuracy using just one month’s figures, but at least you will be able to make an educated guess about how much you will spend for the year. Go ahead- fill in the spreadsheet for the upcoming months. Dry cleaning $x each month, utilities $y each month, taxes $z in April. Now make some adjustments to try to get things to be as accurate as possible. Do you use more energy in the winter when it is cold? Add a little something to the figures you have input for utilities for the months of December, January, February. Do you go to a lot of holiday parties in December- add a little something onto your dry cleaning bill for that month. Do you have reason to believe you will be paying more taxes this year? Go through this exercise for all your categories. Now add all the monthly totals to come up with a grand total for the year. Are you surprised by what you will spend for the year? Try playing around with the spreadsheet a bit. Reduce a few numbers here and there.

Ask yourself two questions. First, do you like what you see? Second, are you being realistic? If not- go back and fix things. When the answer to both of these questions is yes, then you have effectively created a budget for your household.

Perhaps when you have heard the term budget in the past it has conjured up negative feelings. Here is why it shouldn’t. Businesses have budgets and make projections about what they will earn and what they will spend. So, if it is acceptable for businesses to make decisions based on a budget, then why shouldn’t it be acceptable for you?

3. Tracking Spending Reduces Stress.
When you don’t know how much you owe and when it comes due, it creates a great deal of stress. Creating a budget allows you to figure out exactly what you can do to make sure that your expenses don’t add up to more than your income. However, if your expenses do add up to more than what you earn, having a budget allows you to see how long your savings will last. Moreover, having this type of budget allows you to show family members how certain purchases will affect your bottom line. Consequently, purchasing decisions can be based less on impulse and more on reason.

4. Tracking Spending Helps You Make More Informed Decisions About Purchases
When you are buying that tall skim no whip mocha at Starbucks every week are you really thinking about how much money you are spending in a year. Probably not. Assume you spend $10 on coffee every week at Starbucks. There are 52 weeks in a year. $10 times 52 equals $520. Now if you get a lot of pleasure out of that coffee, you may well determine that spending $520 on coffee is worth it. But maybe you won’t.

A lot of personal finance blogs will talk about budgeting and then get into a discussion of wants and needs. The problem is- human beings truly have very few needs. Food, shelter, something to cover our bodies with. So everything can then be thought of as a want and as unnecessary. This can leads one down a slippery slope where everything that is wanted should be denied and all money should be saved.  That’s just not practical.  Like the dieter who constantly denies themselves the piece of chocolate cake and then goes on a binge eating every sweet they can find, I worry the above practice can lead to a situation where the individual, tired of always saving every dime might just go out and binge on unnecessary purchases.  That’s why I think that getting that Starbucks coffee every now and then can actually be a good thing.    

To me, the issue really is more about what do you value and what can you afford. Some people want to save as much as possible for retirement, for their kids college, for an emergency fund etc. etc. etc. and other people are happy saving just a little less so they can experience different things that life has to offer. However, we all have very different ideas of what will make us happy and content. Additionally, we all have very different financial situations. Thus, just because someone values something very much, they may still not be able to buy it. 

Nevertheless, everyone can benefit from tracking their spending and creating a budget. So why not give it a try?