Where does all your money go? Not everyone can answer this question with any degree of accuracy. Income is fairly easy to pin down: one or more jobs, maybe a bit of interest on a savings account and one or two investments if you’re lucky. Expenses however, are quite another matter; this is because there are so many of them and so may ways to pay. Identifying your annual expenditure can be an important first step in taking control of your personal finances. Here’s how to do it.
Stop using cash
Things you pay for in cash are the hardest of all to track, so avoid using the folding stuff if you can. The only ways to track unavoidable cash expenditure are to keep a notebook and pencil in your pocket, save receipts or make a note of purchases on your smart phone or computing device each time you hand over cash. Add up your notes or receipts at the end of each month so that you have a list something like this: takeout food and drinks – $94, newspapers – $63 and transportation tickets – $117.
This is a very cumbersome way to record expenditure, so every time you hand over cash, ask yourself if there is a way to pay where someone else – your bank or credit card company – does the tracking for you. Also be aware that you can probably save money with a monthly train or bus ticket or a home delivery newspaper subscription, which also reduces the number of transactions to be tracked.
Simplify your financial transactions
The best way to keep track of your outgoings is to cut down the number of payment channels you use. Aim for a single checking or transaction account at the bank (separate from your savings account) and just one or perhaps two credit cards. If you have a checking account, make sure you fill in the check stubs with dates, amounts and a few details about what you were paying for. Your financial institution will not fail to send you a monthly statement, on paper or online; and some payments like your mortgage or rent, are regular and easily recognizable this way.
With just a couple of statements to go through each month to find out where the money went, most of the work is already done. Look at your statements as soon as they arrive, while your spending is still fresh in your mind, and make notes on the statement about the nature of any items whose details are not immediately apparent.
Channel most of your expenditure through a credit or debit card
People who are adept at tracking their personal finances do not shy away from using their credit or debit card. Rather than seeing it as a temptation to spend more than you can afford, view it as a tool for tracing all your outgoings such as discretionary and non-discretionary expenses. If you stay within your budget, then you will be able to pay off the balance every month and avoid interest charges.
Meanwhile, your card company will send you a monthly statement showing what you spent and where you spent it. Retain your purchase receipts though, because sometimes the suppliers’ names (e. g. ‘Jones Inc.’) give few clues about the nature of their business. Arrange to have monthly utility bills automatically charged to your card, saving you time and avoiding late payment fees, and use contactless payment technology (payWave, PayPass, paying with a smart phone) for those smaller amounts you used to pay in cash.
Best of all, let your card company not only provide you with a list of your monthly purchases, but also add the extra service of analyzing your spending under headings like ‘supermarkets’, ‘medical services’, ‘gasoline’. You may also be supplied with pie and block charts and average monthly and annual spending data. The ‘Spend Analyzer’ offered by the Discover credit card company is an example of this facility.
Make use of the information
Once you have your monthly credit card and checking account purchases analyzed, and are keeping track of those now rare cash transactions, then it is a fairly simple procedure to transfer the totals to a spreadsheet once a month. Use the rows for expenditure headings and the columns for months; add up the monthly amounts to produce a total for each expense heading as well as a grand total at the end of the year.
Now you know exactly where your money went, and the difference between your total expenditure and your total income should be the amount by which your savings grew or fell during the year. You have at your disposal an invaluable financial tool that can form the basis for a personal budget for the coming year, provide the data needed for a loan application and be the starting point for a year-by-year comparison that will help you rein in overspending when the going gets tough as well as let you splash out a little in the good times.