Where Does Your Money Go? – Family Budgeting

Sometimes I read articles about how to save money and shake my head.  I don’t have a daily coffee habit I can cut and I don’t pay for magazine subscriptions (not that magazines with money saving tips ever suggest this one!).  Then with food allergy specialty items forget about cutting options there.  What has worked for us is tracking our expenses meticulously.  Not hard once it becomes routine and once the picture of your spending emerges you can see where you really can cut and make changes.  My husband (you can read his previous guest posts about putting in our laminate flooring and comparing our Subaru Outback to our Honda Pilot) explains our approach below.  We’ve also got our spreadsheet template as a free download if you’d like to give it a try.  The whole idea of this blog is to contribute to the hive mind of the internet so do let us know if you find this helpful!

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My wonderful mother raised my sister and me on a teacher’s salary, largely unaided.  Things were tight early on after my dad left, especially in the summer months when the work didn’t pay as well.  By the time I was out of college she’d racked up over $20,000 in credit card bills.  She called it “creative financing.”  There was always a new credit card offer in the mail with zero percent interest for 6 months or a year (this was back when transfer fees were capped!).  She’d move all the debt to a new card or cards and gain enough breathing room to keep us afloat for another year.  Now, to be clear, we did not live extravagantly and payments were never late.  The cars were old.  We ate a lot of cabbage and potato soup.  Luxury meant a new tie for eighth-grade graduation.  Her problem was not an abundance of lifestyle but an absence of income.  Things got better through the years for various reasons.

I’m not trying for sympathy; she did what had to be done and it all worked out in the end.  However, by the time I graduated college and long after the thinnest years, having credit card debt was just something she accepted.  I asked what we could do about the debt.  Offering to help however I could, I asked her where the money was going.  What can we do to pay off this debt?  Well, she said, the money was gone every month. Nothing you could do about that, right?  I asked where the money was going and actually wrote down her answers.  She was literally surprised, after picking her brain for every possible expense, that several hundred dollars were unaccounted for each month.  So, from that day forward, the credit card bills became the priority and disappeared entirely in just over two years.  Of course, it didn’t hurt that I took over utility payments during that time and probably helped shave a year off the schedule.  Ever since then I’ve kept track of my own spending in one way or another.  Now, it’s practically a hobby.

The focus of this post is two-fold.  First, to explain and offer for your use, free of charge and free for distribution with credit, the spreadsheet I use to keep us in the black.  Second, I’ll try to sneak in some budgeting tips and information about alternative budgeting tools.  I’ve been using this spreadsheet for several years.  I am very dedicated to tracking our spending and without such dedication I should suggest that you look elsewhere.  I like to know the details and insist on having real numbers to work with.  To achieve this end, I manually enter nearly every day-to-day financial transaction we make!  A lot of fixed expenses are calculated automatically, but gasoline, diapers, and food, as examples, must be entered on a daily basis.  However, I agree with many budgeting sites that suggest – at a minimum – to track spending for a few months so you have firm numbers to work with.  So, even if you’re afraid you won’t be able to keep it up, try this for a month or two and see what you think.  It becomes second nature to sit down when you get home and spend two or three minutes entering the day’s receipts.  Using a credit or debit card also helps because you can check for missed entries.

If you’re the “big picture” sort or simply can’t spare the time for daily updates, I suggest trying an online bank aggregator site like Mint.com.  Some banks offer similar services.  Bank of America, for example, has MyPortfolio which I actually use in addition to my own spreadsheet.  The gist of these aggregators is that they allow you to look at all of your bank accounts in one spot, including car loans, student loans, mortgage(s), credit cards, investment accounts, etc.  The good ones also allow you to manually enter cash transactions and will keep track of the value you assign to your house and cars, as well as other physical property if you like.

The other, other option is a software product like Quicken (amazon affiliate link).  I have never had any luck with these because I have not found that they can be personalized enough.  However, because I gave up trying dedicated software almost a decade ago, I am no longer in a position to pass judgment.

My final opening note is that I am far from an expert spreadsheet maker.  The attached sheet, combined with my “net worth” tracking sheet do everything I need them to do.  It has shortcomings, or course.  For example, I don’t account for the value of my cars and house becuase I’m more interested in using this particular sheet for cash flow.  Flaws aside, perhaps it will give you a starting point to build on.  That’s the great part about using a spreadsheet.  You can customize it exactly as you like and the internet has a wealth of information if you need complicated formulas.  We use Open Office which I highly suggest, though I’ve made the sheet available as an Excel document (Expense Tracking).  Open Office is a completely free office suite.

EXPENSE TRACKING

My underlying theme in tracking our expenses is to convert everything to average monthly expenses. The averages, over time, have proven to present a very accurate picture of our finances.  For example, if the averages tell me we’ll have $100 left at the end of every month it’s usually pretty close.  Of course, gratefully, we have a little wiggle room in the budget.  We can absorb a $300 electricity bill in the summer and wait for the $100 winter bill to average it out.  Large yearly or bi-yearly expenses also aren’t a big problem.  We can pay for car insurance twice a year and not break the bank, having anticipated the expense.

Over time, if you spend according to your average expenses you should have savings to cover that occasional high bill.  As always, you must have some savings.  One month’s expenses should be an absolute minimum.  I hear far too many people say they can’t save any money.  Certainly this is true for some families, but most people have room in their budget for savings.  However, you must know where your money is going if you have any hope of accumulating savings.  That’s where expense tracking comes in.

BUDGET TAB

This is where the action is.  I can look at this sheet and determine exactly how we’re doing.  I also spend a bit of time here double-checking our fixed expenses.  There is no reason, for example, to plug in your cell phone bill every month.  This is a relatively fixed expense that you can count on each month.  However, if you get a new plan you may need to adjust the monthly amount, so don’t forget to check every now and then.

Over the years I have also put in a few calculations to help me instantly convert regularly irregular expenses to monthly numbers.  Car insurance is one example becasue it seems to go up every year until I threaten to move my business and it goes back down.  Whenever I “write a check” for insurance I plug in that amount and the monthly expense is populated.

MONTHLY TAB

Each month gets its own sheet.  I have been using the categories included for as long as I’ve been using the sheet and they have worked for me.  You can use whatever categories you like.  I use them roughly as follows.  “Food” is for grocery shopping only.  I don’t include anything I don’t need to live like soda or dining out.  “Home” is for repair costs as well as general household supplies like paper towels and laundry detergent. I’ll also put household tools in this category.  “Cars” is for nearly anything related to the vehicles, including gas, repair costs, smog checks, washes, and the like.  Anything not already listed as a recurring expense like insurance, that is.  “Baby,” which I’m actually phasing out and plan to replace in the near future is for things that only a baby would need, like diapers and immunizations.  I’ve never liked that category and intend to replace it as soon as I think of something better.  “Personal” is for hair cuts, clothing, personal care products, shampoo, etc.  The “Other” category is for things I simply cannot put in another category.  It is a small category for me and actually averages out as a negative right now because I’ll include cash back from credit cards and other irregular income I can’t peg to a particular expense.  One other example of “other” would be if I had to pay for parking, which is very unusual in Las Vegas, and isn’t exactly what I consider a “car” expense (due to it’s rarity).  As another example, I picked up an inexpensive prescription for my mother one day not expecting or receiving reimbursement.  I didn’t want to put it in the “health” category because it would skew, by whatever small amount, the true cost of my family’s health care.  So, that went in “other.”

“Luxury” is anything I don’t need to lead a reasonable existence.  Obviously some “luxuries” make life more enjoyable, but spending must have a place among the categories and I’ve cast a wide net for the Luxury category.  Don’t try to cut expenses by eliminating everything fun.  That plan will last about as long as only eating beans three times a day.  Fatigue sets in and you fall back further than you were in the first place.  I include in “Luxury” meals out, toys for the kids, alcohol, all gifts, music and books, vacations, etc.

My goal is not to individually track spending at each merchant or for each product name, but to have general-enough categories that I can get an idea of where we’re spending and over-spending.  Keep in mind that it does not matter what categories you employ or what items you put in each category.  It is important, however, that you remain consistent.  I have found that having fewer broad categories is the best way to go.  I personally also break down multi-category receipts.  So if I shop at Costco and buy diapers, broccoli, and a new shirt, I’ll break those expenses out to three separate categories.  But, you could probably just plug the entire amount into the category you spent the most on and it will be close enough over time.

AVERAGES TAB

This tab is entirely populated by each month’s tab.  It is a quick way to see trends in spending.  If you have an unusually high or low month, it may be worth checking that month against other months to see exactly where the discrepancy lies.  If “house” has been unusually high for two months in a row, I’ll go back to see where the money went, and make it a point to reduce such spending for a few months until things even back out.

I also only use about one year’s expenses for the average that transfers to the Budget sheet.  I’ve been spending less and less on baby and more and more on food, for example, so knowing what I spent on “baby” two years ago isn’t that helpful.  If anyone actually gets to the one-year mark I’ll happily provide instructions for adding new monthly sheets and modifying which months to use for the Averages tab.

CONCLUSION

I hope you’ll have a go at budgeting, or as I more accurately call what I do, expense tracking.  I suspect that for many people who are already conscientious about their spending, a full picture of where your money is going will result in some ‘found” money.  For me it’s about avoiding surprises every month.  If that food category is growing faster than expected, we keep it in mind when shopping next time.

Thanks for reading.

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Here’s is the link to download the spreadsheet my husband detailed above, just right click and select “save link as:” Expense Tracking