Finance Talk: Tracking Your Spending

Finance Talk: Tracking Your Spending

My last blog post was an introduction to tackling personal finance. Today, I would like to talk about tracking your spending. There are many useful apps out there and different methods to track spending. You can find a list of useful apps here.

The approach that has worked best for us is three-fold:

  1. Simplifying my budget to have only 4 categories
  2. Reviewing my bank accounts twice a day to assess spending
  3. Monthly review of spending

Simplifying Your Budget

My approach to budgeting completely changed after reading the book “Money-Free Money” by Shannon Lee Simmons. Before, I had endless rows of categories in my budget, feeling pained every time we went over budget in a particular category. It was almost impossible to stick to because each month had variations in spending that were sometimes out of our control. Without further ado, here are the 4 categories to simplify your budget:

  1. Monthly Spending: this is the money you will use for things that generally occur every month, yet are variable in amount. This includes things such as groceries, gas, kids’ activities, dining out, books, entertainment. You will get to this amount by adding up all the amounts in these categories and arriving at the total amount that you should try not to exceed every month. If any is left over at the end of the month, you could transfer to savings or leave it in your account as a reward for something special the next month.
  2. Short Term Savings: This is for “spikes” in spending that occur in the course of the year. This can include clothes, gifts, donations, birthday parties, vacations.
  3. Emergency Savings: This is for unanticipated expenses that may crop up in the course of the year. This can include things such as house and car repairs and maintenance.
  4. Fixed Expenses: these are expenses such as phone bills, subscriptions, electricity, mortgage etc.

There are different ways of keeping track of the above 4 categories. For us, we use the following:

  1. Four different bank accounts: our bank allows this with no extra fees. This makes it easier for us to track our different categories of expenses and savings
  2. Excel spread sheet: this helps me to keep better track of individual items in each category if I so choose. For example, if I have set aside $500 for clothes for the family for the year, then I use an excel formula to subtract from $500 every time I make a clothing purchase. This can also be done with apps of course.
  3. Our banking app has an inbuilt function that breaks down spending in each category. This is not always accurate depending how the app chooses to categorize things, however it gives a general idea of spending

Reviewing Your Spending (Daily)

It’s important to review spending regularly as we often spend more than we think and little amounts add up quickly. Over the last several months, we were able to reduce our spending by several hundred dollars by tracking our spending regularly. I soon discovered that spending in certain areas was not matching up with our budget.

I choose to check my bank account once in the morning and once in the evening mainly because many of our bills and purchases come out of our credit card (yay, reward points!) and our goal is to pay back the credit card the same day that an amount is drawn from it. I find doing this twice a day works best for us as I sometimes forget if I paid off an amount or not and there is sometimes a lag between when you pay off an amount and when it shows up on your credit card.

Reviewing Your Spending (Monthly)

Finally, I like to do a monthly review in order to tweak my budget if there are some areas I actually spend less or more in. This is also a good time to assess if any further expense cutting can be done. Haven’t used a paid subscription all month? Perhaps now is a good time to unsubscribe!

I hope this post has been helpful. If you have any questions or comments, feel free to comment below or you can also reach me at thepotentialdoctor@gmail.com

Let’s Talk About Finances

Let’s Talk About Finances

One of the great things about being married to my husband is that he has instilled in me the habit of voracious reading. I always loved to read as a child but when I first started high school at a very competitive, demanding private school, my love of reading for pleasure was somehow replaced with the demands of studying and obtaining good grades.

My husband readily makes his way through 20+ books a month, most of them audiobooks. I am nowhere near my husband’s level of reading at this time but I have been managing around 4 books a month through a combination of audiobooks, kindle e-books and a few hard copies.

With my 2 hour + commute to and from work daily, this is when I get most of my reading done. I usually include something inspirational on my way to work to get me in the right mindset for the day and then listen to a medicine-related podcast on my home to get in some studying. My “sit-down” reading usually occurs on Saturday and Sunday mornings before the kids are awake and just before bed during the week.

With this in mind, I would like to share with you what I have been reading. The first set of books I want to share with you is related to the topic of Finances. I have to confess that I was at first hesitant to write about this topic as it would mean revealing details about our own personal financial status which is not easy to talk about. But I feel that I had to share this because most people have struggled with finances at some point and the more we can learn on the subject, the more we can feel empowered to make a change and rise above our circumstances!

In 2016, I forfeited my income from my previous career to go to medical school. I knew that delaying my income for 4 years plus taking on debt to pay for medical school and help support the family was going to put a big dent in our finances. My husband and I considered it a worthwhile investment with the added reward of pursuing a career which gave me a sense of purpose. We were however faced with the reality of trying to get our finances back on track.

When I started residency last year and started to have an income again, I was torn between saving the money versus paying down our debt. This has been the subject of much debate and I finally concluded from my study of various sources that the decision is a very personal one and there is no one right or wrong answer. Some choose to do one or the other, or both. For us, we have chosen to do a bit of both because our debt is low-interest debt and we want to invest more aggressively now since we are already in our early 40s. Before plunging into my intense reading around the subject of finances, I realized I was somewhat floating along without a very clear sense of direction for our finances. I knew the basic principles of course but was there more I could learn? Sure there was!

For me the first step was overhauling our budget and taking a close look at where our money was actually going. Then, findings ways to cut down on expenses such as car, home insurance, cell phone bills, and groceries. I have to confess that in my past life, I barely glanced at my bank account in the course of a month. Money came in, money went out….rinse and repeat! Now, I check my account twice a day (once in the morning and once in the evening)…I will elaborate on why this works so well in a subsequent post. Suffice to say, this approach has saved us close to $400 a month over the past few months.

My husband and I are also fairly new to investing and have made some changes to our savings plans…more on how to do this in a future post! The point I really want to drive home is that it is never too late to get a handle on your finances. Every small change you make today can have a significant impact on tomorrow! Don’t let debt discourage you…the debt will eventually be eliminated, and your savings will grow with time! As an example, by refining our budget and sticking to a reasonable debt repayment plan, we have been able to pay back $20,000 in the last 9 months without having to eat only beans for supper every night. This is with average 5 figure incomes for both my husband and I.

So without further ado, here are my top 6 books on Finances and Investing that I have read this year (all available on Amazon). The authors give excellent, practical advice with additional resources for your information.

For fine-tuning your budget in a simple, straightforward manner and coming up with a feasible debt repayment plan:

1.Worry-Free Money by Shannon Lee Simmons

2. Living Debt-free by Shannon Lee Simmons

For principles on wealth building:

3. Millionaire Teacher, The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam

4. Money Mastery: Making Sense of Making Money for Making a Difference by Billy Epperhart (I like that the focus of this book is ultimately using your wealth to benefit others)

For introductions to investing:

5. Beat the Bank, The Canadian Guide to Simply Successful Investing by Larry Bates

6. Stock Market Investing for Beginners

Stay tuned for my next post on how tracking your spending for just a few minutes a day can save you hundreds of dollars a month!