5 Steps To Tracking Spending In Under 5 Minutes

Track SpendingI’m not going to lie: budgeting and tracking your spending really aren’t sexy or fun.  I’ve heard lots of complaints: it’s annoying, it doesn’t really help, and it’s tedious to track where every dollar is spent.  But if you have debt, are constantly out of cash, and don’t know where your all of your savings have gone, tracking your spending is, by far, the most effective way for solving these problems.

You may have tried this before and lost interest or the desire to budget after a short time (I’m guilty of this, too).  A common misconception is that you have to launch an all-out assault on spending by obsessively documenting every single financial move you make.  This is simply not true! Before you complain how you don’t want to enter every receipt into QuickBooks, realize that there are other, simpler options out there to get you on the right track.

Here’s my approach to creating a quick and simple budget that you can manage on less than 5 minutes a day.

1.  Track income and spending in 4 categories.

The object of this isn’t to set up a system and then ditch it when it’s too laborious to work with.  Instead, start simple.  Create 4 columns in a spreadsheet (I recommend using Google Docs) or notebook with the following headers:

1. Income
2. Necessities
3. Fun and Entertainment
4. Investments and savings

Here’s a spreadsheet I created in Google Docs that you can use by saving your own copy (click File then “Make a Copy”). I prefer Google Docs because I can access my spreadsheet from any laptop or phone with an internet connection.

You can set get more detailed with your tracking if you’d like (see step 5), but hold off at this point if you are just starting out.

2.  Place each money transaction into the appropriate column.

Do this at least once a day (so you don’t forget to add things). Use one line for each transaction.

“Income” is simply any money you receive over the course of the month, either through paychecks, money owed, or other sources.  Any money coming in should be counted.

The “Necessities” can be anything that’s a necessity for you to live: rent/mortgage, utility bills, gas/car expenses, groceries, medical expenses, personal care supplies.

“Investments and savings” is any money that you move to a savings or investment account from your checking account.  This could be for an emergency fund, retirement account, or any other money you don’t plan to spend immediately.

“Fun/Entertainment” is anything you spend money on that doesn’t fall into the “Necessities” column.  This may include going out to eat, seeing a movie, or buying a DVD.

Rule of thumb: if you aren’t sure if it goes under “Needs” or “Fun”, it’s probably not a Need.  Be as honest as possible with this step; it’s meant to help you figure out where your money is going.

Write a short description with each entry to give some detail about how the money was spent, such as “lunch at Chipotle” or “book on Amazon.com.”  If you find it annoying to add every single little detail, then don’t.

3.  Check the totals on the last day month.

This can take as little as 5 minutes if you don’t want to spend much time on it.  Your focus is on where your money has been spent and determining if you’re overspending in certain areas.

4.  Use last month’s spending to set some simple budgets for your next month.

Chances are your numbers aren’t right where you want them to be if this is your first month, and you may have spent more than you think you should in the “Fun” category.  That’s okay.  The goal here is to figure out where your money is flowing and to adjust spending accordingly.  The “Fun and Entertainment” category is where you should pay most attention.  “Necessities” should be fairly fixed cost, month-to-month, and you should have monthly savings and investment goals in mind, too.

Be realistic in setting your budget.  If you spent $1,000 on entertainment last month, don’t expect to drop it down to $100 the following month.  Instead, bring your spending down gradually, such as from $1,000 to $900.

Repeat this process each month by continuing to track your spending and updating the budgets as necessary.

5.  Optional – Move on to more advanced tracking of expenses.

Personally, I have a spreadsheet with about 50 cells to track spending.  It’s available as a GoogleDoc template called “Personal Monthly Budget“.  I’ve been doing this since September of last year and noticed a number of trends right from the start.  Spending $100 a month going out to bars with friends is something I need to reduce when it’s eating up 10% of my income.

Before you dismiss this tracking plan, just give it a shot (even if it’s only for a week).  It’s a small step to take that may save you thousands of dollars in the long run. I know it isn’t fun, but it’s truly an effective way to keep track of money and get your finances on track with little effort.

The Secrets of Maximixing Fulfillment From Your Purchases

Buying things doesn’t always lead to the feelings that I hoped they would.  Often times, I feel the excitement of a purchase is the high point, with interest in a new gadget or toy in a steady state of decline the time afterward.  I recently thought about this after reading a chapter in Your Money or Your Life, which instructed you to look at your purchases and determine if it gave you adequate fulfillment. I really like this concept, but I thought I would take it a step further: evaluate fulfillment potential before buying in the first place.

I always want to get the most out of my purchases.  Sometimes it becomes a bit of an obsession for me.  I’ll often spend 30 minutes on Yelp to figure out the best option for a Saturday night meal or heavily research customer reviews on Amazon.com.  But this would be a total waste of time if I evaluated every dollar I spent in this fashion.

At the opposite end of the spectrum, there’s impulse buying, where almost no time or thought goes into the purchase.  Impulse spending is more problematic since 1) a greater proportion of money is probably spent in this way and 2) what is spent is usually on things that garner less reward.

Regardless of your plan to a acquire a new knick-knack, here are questions to ask yourself before you make any purchases, especially pricey ones:

“Will this purchase really change my life?” Obviously if you’re dead set on buying something already, you’re going to be biased.  But if you’re willing to be objective and open-minded, you may think differently.  There are a lot of expensive purchases made under the assumption that it’s somehow going to revolutionize our life for the better.  Often, the effects aren’t long lasting.  I really like my MacBook Pro, but I’m not certain it’s value to me is worth a whole lot more than a cheaper computer. Many small purchases like an DVD or a cup of coffee probably won’t ever change someone’s life (again, being objective here), but that’s not to say you shouldn’t buy these things.  However, I think it does raise some questions as to its importance in your life relative to other things, which leads to the next question.

“Is there something better I could do with this money?” I use this every time when I refuse to buy lunch.  There are tons of other things I’d rather spend that money on: drinks out with friends, dinner with my girlfriend, or even just buying fancier food (like gourmet cheese!) from the grocery store. There are plenty of places to put the money. If you don’t have an automated savings plan, this is the perfect time to find ways to fund savings accounts.  Instead of spending $70 on a pair of shoes, save it for emergencies, vacations, or other adventures down the road.  You’ll be happier when you’ve saved yourself from three different $70 shoe purchases and suddenly have $210 to spend towards a trip to Europe.

“Have I purchased something similar in the past? How did I feel about it then?” I recently made my third car purchase in my life. Looking back to when I financed my second car, a brand-new Hyundai, I felt great about it at first.  New car smell and all, it was great!  But I eventually got sick of the car payments.  With the most recent car, I knew that I didn’t want to make monthly payments again.  I sought out to buy the cheapest car possible this time around, and I paid $1,000 cash for a 1997 Nissan.  While I still don’t love owning a car, I feel much better about spending $1,000 rather than $10,000, and I knew I would feel even better than sinking a lot of money into this purchase.

“Can I really afford this? Will affording this be stressful?” This is a question I find coming up a lot when my monthly budget starts to get tight.  If I’m being peer-pressured into an expensive night out, but I’ve already eaten up all of my fun budget, I know it’s going to take serious sacrifice to make ends meet.  I’m all about fun times, but it’s not helpful later when I realized I’ve spent too much.  That creates stress, and sometimes it’s simply better to say “no” when it’s not affordable.

Looking back at my purchases now, I wish I had asked some of these questions.  I’ve learned several (expensive) lessons, but it’s taught me how to maximize fulfillment and happiness from my purchases.

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photo by: Jason Cartwright

What’s My Minimum Wage?: Getting By On $13k a Year

I’m living on about $13k (or about $1,100 a month), which is just slightly above poverty level.  Before that, I lived on about $22k/year for my two years of graduate school (2008-2010), and I lived fairly comfortably yet still cheaply.  Having lived on a stipend for the last 3 years, I feel like I have a great sense on how much the minimum is that I can live on without major sacrifices.  The whole experience has been difficult, but I’ve been able to do it without amassing credit card debt and still maintaining a happy and enjoyable life.

Living on about $1,100 a month is no easy feat and certainly requires some sacrifice.  Here are some things that I know I can’t afford to do:

– Eat out for dinner more than once a week (and I never eat out for lunch).

– Buy “things” like DVDs, iPhones, or other gadgets.  I’ve basically eliminated these things from my budget, and only make one or two purchases of “things” a month (and sometimes I make none).

– Do just about any sort of traveling.  Weekend camping trips can fit into the budget here and there.  Flying to Europe definitely can’t.

– Implement any significant savings or investment plan.  I still have automated savings accounts, but they aren’t funded at the levels I would like them to be.

– Live alone or in an expensive apartment.  Right now I pay $400/month for a modest apartment with 2 roommates, but I can’t imagine affording more than that.

– Try to get by without a budget or without tracking my spending.  I know I need to be very aware of my spending and where I’m at with my monthly budget.  I work with this for at least a few minutes on a daily basis.

– Not fall back on my savings here and there.  Car ownership is virtually impossible, especially with unexpected costs. I’ve had to rescue myself with savings a few times.  I hate having to do it, so I avoid it at all costs.

Yikes! Looking at that list, you must be thinking “that kinda sucks!” But I can honestly say that I don’t notice it much in my day-to-day life, and I’m genuinely happy.  Is it sustainable long-term? Absolutely not, and I don’t plan to try to make it so, either.

What I do think like about this level of income is that it’s forced me to be really frugal and has given me real life experience of what my minimum income level is (and what living in poverty is like, too).  I would say my realistic minimum wage is probably more like $17k, but clearly I could get by on a little less if I absolutely needed to.

After my service work ends in August, I’ll undoubtedly be earning more than $1,100 a month.  Envisioning what things will be like then, I feel like just about everything I earn above that sounds like a bonus to me.  For example, say I double my earnings with my next job and earn a still-modest $26k a year. That kind of salary sounds like the high life to me right now!

Despite the fact that I really can’t save much currently, I’ve had time to plan for the future when I will earn more.  Let’s take a look at where I would put my money if I’m earning a “great” salary of $26k:

1) Donate 10% of what I earn ($2,600)

2) Long term savings 10% ($2,600)

3) Invest 15% ($3,900)

Remainder = $16,900

So even with these better-than-average financial goals (at least in terms of % of earnings), I would still have $16,900 ($1400/month), which is about 27% more than what I earn right now! Even at those numbers, I think I could live a very good life.  Can I drive around in Mercedes? No. Can I go out for fancy dinners several times a week? Doubtful.  But that isn’t the point.  I don’t want to do those things anyway.

Just to be clear: I’m definitely not striving to make $26k a year for the rest of my life or even next year.  I’m really just looking at these calculations because:

a) This should be an easy level of income for me to obtain no matter what money earning path I choose,

b) I could live at this level of income for short periods (a year or two more), if needed,

c) I plan to maintain a degree of frugality similar to where I do now, and

d) I don’t have to panic about going out and getting a high-paying ($50k+) job if I don’t want to.

If somehow my life goes terribly wrong, and I end up back at $1,100 a month, I know I’ll be able to handle it.  That is a very reassuring feeling.

What’s the minimum you could live on? Can you survive on $13k?

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photo by: Casey Serin

Five Financial Resolutions For (the Rest of) 2011

With nearly one month of 2011 already gone, I’ve rethought my resolutions (already). I’m not huge on New Years’ resolutions, and it always seemed like an activity that everyone simply does because everyone else is doing it (not really my style).  But I still think resolutions can be useful (if you’re committed to them), so I’ve jotted down some financial goals for myself.  Here’s my initial resolution list, along with comments one month into 2011:

1) Track spending more closely. I started doing this back in September 2010 because 1) I get paid a less-than-minimum-wage stipend each month for doing full-time national service and 2) I wasn’t sure where most of my money was spent even when I had higher incomes.  Like many, I’m sure, I get frustrated when I’m left wondering where my last paycheck went.

My money tracking experiment has been a success so far.  I found a great budget template on GoogleDocs (I use the “Personal Monthly Budget” with a few modifications).  Using GoogleDocs has allowed me to make updates to the spreadsheet at home, work, or anywhere with internet, so there’s really never an excuse for not entering my latest spending.  Since I’ve aggregated several months of spending data now, I’m more easily able to create a budget for the following month.  While I’m excited about the progress so far, I still think I can do better, partially due to resolution #2.

2011 so far: My tracking is going well. I’m still using GoogleDocs, and I would still encourage anyone else to do so. I may not be capturing 100% of spending, but I’m satisfied with how I’m doing.

2) Use credit wisely. I think credit cards can be a huge convenience while providing protection and rewards, among other benefits.  However, credit cards are only make sense financially if used properly.  This means avoiding finance charges and late fees.  While I’ve carried balances on my credit card before, I’ve vowed never to let that happen again.

I wasn’t wildly irresponsible with credit cards in 2010, but I would like to keep better track on my credit balances as I move through the month.  I’m diligent about checking my recent credit activity online (I do this a few times a week), but sometimes charges don’t show up for several days.  By the time I’ve realized or remembered purchases that I’ve made (I’m a bit forgetful), I may have already made additional purchases.  This situation is most responsible for derailing my monthly budget, so I’d like to be sure to stay on top of this and keep my monthly budget spreadsheet updated.

2011 so far:  I’m doing great with this so far.  I’ve also decided to periodically send payments to my credit card in order to prevent large balances at the end of each billing period.

3) Increase cash flow. As J.D. at Get Rich Slowly (one of my favorite blogs to read) points out, cash flow only increases by either increasing what you earn or decreasing what you spend.  I can very comfortably say that my spending has basically bottomed out, so I have to increase my earnings.  There are various ways to do this, but I am somewhat limited by my current position in national service (for starters, I’m not allowed to get a second job). One of the steps to increasing cash flow I have taken is to start this blog.  I’m not entirely sure where this blog will lead yet, but I’ve set my sights high.

Once my national service ends in August 2011, I’ll have a much easier time increasing my income.  I’m not entirely sure where I’ll end up yet in terms of jobs or careers, but will continue this business and blog for the long term.

2011 so far:  I started out the year with a bang by selling a few things on eBay, netting me a few hundred dollars. I also sold a gift card on Plastic Jungle that I knew I wouldn’t use.  I probably won’t be able to keep up this level of cash inflow, but I’m working on other sources, too.

New goals added during 2011:

4) Start an emergency fund. So I can’t afford to save a full-fledged emergency fund of 3-6 months right now, but I’ve been recently convinced that starting any type of an emergency fund is important.  While I’ve been fortunate enough not to have any major emergencies so far in my life, I realize crises are inevitable and often expensive.  One of the main sources of money-related stress for me (and I’m assuming you, too) is unexpected costs like car repairs and medical expenses. Based on the advice of others, creating an emergency fund of any size is the best way to avert panic in the future.

5) Develop my online business.  This is my most important goal for the year.  Doing this will have the greatest impact on my finances and on my life.  I’m looking forward to a great year at Money Spruce, and I hope that you’ll be here to join me!

Those are my main financial goals, in short.  I’ll be sure to keep many more smaller and informal financial objectives in place, too (like bringing a lunch to work each day instead of eating out).  I’ll check in with progress on these goals from time to time in future posts.

Do you have similar or differing goals of your own? Add your comments below.

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Photo by rahego

6 Ways to Get Impulse Buying Out of Your Life Right Now!

As a recovering impulse buyer, I’d had to say this can be one tough habit to kick. With modern conveniences like credit cards and online shopping, it’s certainly a battle for me. It can be so bad that I’ve made purchases before allowing any sort of buying rationalization takes place in my mind.

There are many ways that you can get rid of impulse buys from your life: The Simple Dollar has a great article (10 Simple Ways to Beat Impulse Buying).  With inspiration from this article, here are some of my personal favorites:

1. Get rid of credit cards. If you’ve got a serious problem, this is definitely the most effective solution. Credit cards go hand in hand with impulse buying; you don’t even need to figure out if you have the money to purchase something, you just pull out the card.  Online shopping is borderline impossible without a credit card, so if you tend to buy online a lot, removing credit cards from the equation will definitely cut down or eliminate these purchases.

You don’t have to close your credit accounts to make this work.  Leave the credit card at home when shopping in a store and don’t save credit card information in your account on sites like Amazon.com.

2. Avoid abusing free shipping deals or subscriptions. My biggest downfall was my Amazon Prime subscription. I  paid $70 a year for the privilege of free two-day shipping on anything from Amazon.com. My approach to this quickly turned into getting onto Amazon as fast as I could after thinking of something I “needed”. After two years of Amazon Prime, I dropped the $70 service and my purchases on the site fell dramatically.

3. Require a mandatory waiting period for any large purchases. While I’m not convinced this works in the gun control world, it’s saved me from impulse buy casualties many times. My simple rule: if something costs more than $50, I have to wait at 2 days to buy it. This inevitably forces me to think more about the consequences of the purchase and often results in not buying at all. Considering that the idea to purchase just occurred probably means that I don’t need it right away and can just as easily purchase it a few days from now. I haven’t kept any stats on this, but I would say more than half the time I don’t end up making a large purchase that goes through my waiting period.

4. Research the purchase first. This prevents a lot of in-store impulse buys for me, as I’ve become a customer review junkie and review products rating before virtually any purchase I make. The idea that I may not be selecting the item of the best price, quality, and value is enough to stop me in my tracks. While this does not always stop me from buying in the end, I automatically revert to tip #3.

5. Don’t make emotional buys. In Your Money or Your Life, the authors point out the urge of many people is to buy something to cheer them up when they’re down. Yet we also buy to reward ourselves for a hard week of work or finishing a semester of classes. We even just buy things when we’re bored. It seems that virtually any mood can result in buying for one reason or another. I would also add “don’t make purchases under the influence of alcohol” here, too. All purchases should be made with a clear mind and free from outside influence.

6. Think about how you will feel about your new purchase when it isn’t “new” anymore. The allure of simply owning something shiny and new may be what drives a lot of purchases. I remember this succinctly when I purchased a new car at age 17. Wow! It was great to have a shiny new car! It was clearly a big improvement over my old beater. It was hard to find anything I didn’t like about it for the first several weeks. But after a few months, it wasn’t “my new car” anymore. It was just “my car”, complete with hefty monthly payments, higher insurance, and increased taxes. I  could’ve settled for less of a car and been happier without having to make payments.

One final note: I would recommend that the larger the purchase, the more seriously these tips should be taken and the more scrutiny is needed before buying.

The idea isn’t “never buy anything.” It’s about buying slower and smarter and realizing that purchasing with care can go along way to keeping spending down.