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How Much Do You Really Spend?

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Go on, pick a figure. Whatever you choose I bet it is considerably lower than the figure you actually do spend. It's human nature to downsize when we are thinking about our "outgo". And I know from experience that when you see your expenses written down in black and white, it can come as quite a shock.

If you are flush with money and happy with your life financially, you don't need to worry too much about what you are spending. But if you constantly struggle with cash and you wonder where it all goes, finding out the answer to that question is a very good idea.

I've been through this same experience myself and I know how liberating it can be. Yes it can be a bit frightening as well, but it does ultimately give you power too. You see, most people go out to try and increase their income when they find they cannot make ends meet. But the easiest way you can turn your financial numbers to black (from red) and have more cash over at the end of the month to invest with your online broker, is to save what you already have. It stands to reason, but itÕs amazing how many people don't take this route first.

To figure out your spending, take a look at your income and outgo. This would entail taking a hard look at all the figures and debits you already know about, such as the mortgage, household bills and so on. Anything that gets paid regularly needs to go down on a list with the correct amounts written in.

Write Your Expenses Down!

When I did this exercise a long while back, I bought a small cheap notebook to figure out the real answer to my question of why I never seemed to have any cash left over. This was my daily notebook... the one where I would write down every single penny I spent. All my expenses went in here, including the few dimes I spent on a daily paper. The secret to getting this right and to getting the answers you want is in the details.

I did this for about a week initially, and then progressed to doing it for a whole month. And boy did I get some interesting answers.

Once you've done this, you will see exactly where your money goes and more importantly, you will see how you can make some significant savings as well. For example, you'll be able to see where your weak points are. I found out just how quickly things can add up: I had daily newspapers and magazine subscriptions that I didn't even have time to read, so eventually, I halted those subscriptions. You may not think that a tiny savings like this makes a difference, but saving just a little bit each day can lead you to some surprising totals at the end of the month. You may be pleasantly surprised at just how much you can save by taking small steps.

For fans of budgeting, this type of manual (primitive?) expense tracking is the first step. If you're all ready to evolve your tracking methods into something more committed and involved, then you may be interested in actually using money management software or an easy to use free budgeting application.

So start out with some form of basic expense tracking if you are struggling with your budget. I guarantee that you'll actually start to enjoy finding out where your money goes; and the experience is actually an enlightening one too. It puts you back in control of your cash - every cent of it - and you'll be amazed at the difference it makes to your bank balance at the end of the month.

Posted on April 20, 2010.

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7 Responses to “How Much Do You Really Spend?”

  1. Jackie says:

    What’s funny is that I track my expenses religiously, and my number was STILL massively under what I actually spent. Apparently I need to look at that total daily ;)

  2. Jedrzej J says:

    I agree that tracking your spending helps in defeating some bad money habits. I currently don’t track my spending as I don’t really need to, but I did in the past and it really allowed me to see what happened with my money.

    Also, there are a lot of great mobile apps (like iPhone apps) that help you track your spending.

  3. JMK says:

    Financially we don’t “need” to track our expenses, as we cover our basic expenses with ~55% of our take home pay. The advantage of carefully tracking the incoming and outgoing funds and knowing where every dollar goes means we maximize what we do with the discretionary portion of our money. I have a spending plan of all our known/planned spending for the rest of the year (mortgage, phone, cell, internet, groceries, insurance etc). For electricity I plug in an estimated amount based on prior year costs. As each week passes I replace the planned amounts with the actuals. Every Friday I pay off the VISA where most of our bills and daily spending go – we want all the miles available and never pay interest. I could wait until month end but I’d rather do it weekly and keep our planned spending up to date with the actuals. Every Friday afternoon once the VISA is cleared and the paychecks are in I assess the remaining balance and skim off the maximum amount I can without causing a future week to drop below a $1000 balance*. The excess is sent to either retirement savings or an extra mortgage payment. If I didn’t keep such detailed records of our spending I wouldn’t be able to easily determine the maximum amount that could be removed. I’d likely wind up waiting until a significant amount had built up before transfering it. That delay would mean lost time/benefit since the sooner the money goes against the mortgage or starts earning higher interest the better.

    *We maintain a minimum balance of $1k because A) it means we avoid all banking charges, and B) this is the first chunk of our emergency funds and it is easily accessible. The remainder of our emergency funds are held in a separate less accessable account (but with better interest).

  4. I used to be a financial consultant and when I would sit down with people and ask them this question most of them would under estimate by at least 50%.

    Ironically, on the flip side very few people actually knew how much they were making lol. I don’t know how these people think they are going to be able to figure out their finances.

  5. Monevator says:

    True dat, as they say on The Wire.

    I thought I knew exactly what I spent, until my income reduced in 2008 and I was no longer socking away the usual amount in savings. For the first time in ages I tracked what I was actually spending.

    It wasn’t so much, but there was stuff that cost much more than I thought (energy bills, for instance). I think in my head I was still paying 1998 prices, the last time I had to look really closely!

  6. Squirrelers says:

    Tracking expensive is THE best way to determine where your money is going and exactly how much is spent. Even if you use a primitive method, at least you can determine actual outflow in aggregate.

    When you’re able to break down expenses into categories, it really helps identify areas that can be targeted for savings. I have experience with this over the years.

    What I have specifically done, in practice, is to categorically track expenses for a short period of time – say, 3 months out of every 2 or 3 years. I look at this as an “audit” of expenses, to make sure things are on track. Then, adjustments can be made.

    A basic example came from my expense tracking quite a few years back as a younger person, when I noticed that the food category had sky high expenses. In breaking it down further, and looking at that category day by day, I saw huge spikes over the weekends. Clearly, eating out over the weekends was adding up. This information allowed me to see that making the substitution of one home-cooked meal over eating out would save relatively significant money – probably $10 or so at the least. When you extrapolate this, it adds up.

    Anyway, good topic and a good practice – one that I can certainly be a proponent of, at least when applied on a periodic basis.

  7. marty ludwig says:

    I’ve used a Staples weekly calendar and record daily receipts for a few years now. The family knows to keep receipts so that “anal” dad can work on THE CALENDAR. My problem is sometimes being too tight.

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