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

Mom Tip of the Day: Living On One Salary

Mom Tip of the Day: Living On One Salary

Since we started living on one salary this year, my husband and I had to come up with some creative ways to make our budget work. It also opened my eyes to how much money was literally draining away and being wasted! Something had to change and here are some of the top tips that have helped us to reduce our expenses while living on one salary:

  • Insurance: we realized that we were over-insured when it came to life insurance, critical illness and disability. By this I mean we were paying for more than we really needed and also there was some overlap on coverage (that is, we were getting life insurance and disability covered by both our bank and employer). With a few phone calls to our bank and insurance broker, we were able to tweak our coverage and reduce our monthly cost by $80 a month. Similar adjustments for home and car insurance allowed us to reduce this by a further $30 a month. Look through your insurance policies and see what changes can be made that will still give you reasonable coverage but will make your monthly costs cheaper.
  • Eliminating duplicates: we save a lot of money by only having one car, one cell phone and home phone between us (although this approach is not feasible for everyone).
  • Cell phone extras: I managed to negotiate a reduction in my cell phone bill from $90 to $30 a month by removing extraneous features like call waiting, conference calling etc. I also got rid of my 6G of data since I mostly use WiFi anyway and was barely using the data. Check your phone package and see what features you really need. Chances are there is something you can get rid of that will save you money.
  • Reducing Debt: we decided to focus on paying off debt as a priority and reduce the amount we were investing in RRSPs or other savings plan temporarily until the debt is paid off. By debt I don’t mean a mortgage which will take many years to pay off. I’m talking about credit cards and credit lines which can have high interest rates. Everyone’s financial situation is different but for us, it didn’t make sense to be paying $180 in interest a month on our credit line. (One must of course consider the tax implications of reducing investments in RRSPs but for us, this approach makes sense for the moment.)
  • Books: as avid book readers, this can easily become a huge expense for us. Some ways to reduce the costs include borrowing books from the library and using e-books. Amazon has a special feature called Kindle Unlimited where for $10 a month, you can download a large selection of e-books for use with the Kindle app (this offer starts with a 30-day free trial). The voice-over function on some smartphones can then allow you to have these books read out loud to you so you can accomplish other tasks while getting through your books. There are other useful apps like Voice Dream that will read out a variety of file types like e-pubs and pdfs. These no longer have annoying robotic voices but instead are realistic and offer a variety of accents. A great option if you have long commutes.
  • Food: this is an area we still struggle with because we like to eat healthy food which is often the most expensive. But one approach which has helped us is meal planning. By determining what recipes we will be making, each ingredient is accounted for and you are less likely to buy random things while at the grocery store. This also reduces the chances of food turning into a biology experiment at the back of the fridge because you forgot about it (this used to be a huge source of waste for us).
  • TV/Movies: ask yourself if you really need all those channels you are paying for. Are you making use of it or not? We rent movies for free from our local library (we were surprised at the collection! This is where we discovered the very entertaining Sherlock Holmes mini-series with Benedict Cumberbatch). The old-fashioned video store also has some good rental or pre-watched video deals if you are willing to wait a while after a movie comes out. NetFlix is a good option if you have unlimited internet data and you watch a lot of movies.
  • Clothes: for baby clothes in particular (since they outgrow their clothes so quickly), we circulated clothes among friends and also got bags of clothes for as little as $5 to $10 from other parents using online classifieds such as Craigslist, Kijiji and Varagesale. Check what’s available in your area.
  • Electricity: I was skeptical about this at first but turning down the heating a degree (C) or two during the winter at night or when out of the house, plus unplugging appliances and switching off lights when not in use makes a noticeable difference to the electricity costs. Minimizing the use of the clothes dryer also helps. I use the clothes line outside in summer and racks with a fan blowing on the clothes in the basement in the winter.
  • Activities: There are a plethora of free activities out there to do with family and friends. You just need to find them! Look for institutions in your community that offer free activities, for example, our church offers a free week-long soccer camp in the summer.
  • Hair: we groom and cut our own hair, including the kids’ hair. I learned how to cut the kids’ hair on YouTube (I needed expert guidance on how to cut Caucasian hair given that I am half-African with frizzy hair and my kids are mostly Caucasian!).

I could write on this topic all day but I will stop here for now. Do you have any tips to share on how to save money or reduce expenses? Please feel free to share!

Image courtesy of Stuart Miles at FreeDigitalPhotos.net
Image courtesy of Stuart Miles at FreeDigitalPhotos.net