Where’s the Money Honey?
Posted by Gail | Filed under Budgets
For all of you who have been asking for spreadsheets and spending analysis forms and instructions,
The Gail Way is now available here: http://www.debtfreeforever.ca/
If you have a system that’s working for you, please stick with it.
This is for those who have no system and are looking to put a solid one in place
to make their money work better for them.
Do you know what you’re spending every month? If you don’t know where your money is going, how can you ever hope to know what you may be over-spending on?
Unconscious spending is at the crux of the problem for most people who see their circumstances change even slightly. Lost a few hours a week at work? Where will you trim? Decided the time’s right to have a baby? What will you cut back on in your spending while you’re on maternity leave? Just broken your leg, twisted your back or come down with something that’s gonna take more than a few days to heal? How will you cover your costs when your income slows to a trickle?
If you want to be able to cope with life’s little surprises you have to first know exactly where your money is going. Sure, you may have a big emergency fund, but you may need it to last a long time, so that’s no excuse for being complacent.
Giving up the delusion of “there will always be more money” is the fist step I make people take in my book Debt-Free Forever. Before I lead readers through the process of making a budget, I insist that they do a spending analysis. I’ve had more than a few complaints about how much work it is, how hard it is, how boring it is. Kwitcherbitchin. It is the much over-looked first step. And the knowledge you’ll gain about how you spend your money is worth every minute of the work you’ll have to do.
Don’t even know where to start? Grab your last month’s bank statement(s), credit card statement(s), and line of credit statement(s). Now, break every transaction into one of the following categories:
- shelter (mortgage, rent, hydro, heat, taxes, maintenance)
- services (cable, telephone, security, home-cleaning, cell, internet, childcare, health, pets)
- food (everything you put in your mouth and swallow, including restaurants)
- Shopping (any STUFF you bought for yourself and anyone else — EVERYTHING)
- transportation (car payment, gas, repairs, highway tolls, taxis, bus, train)
- entertainment (movies, books, magazines, hobbies, gym, club, sports)
- bank fees (service charges, ATM fees, NSF fees, DON’T INCLUDE INTEREST)
- interest costs (from everywhere)
- debt repayment (don’t worry about splitting out interest and principal, just add all your debt repayment amounts together)
- savings
In the best of all worlds, you’ll do this for six months’ worth of your paperwork. Why? Well, a half-year is just about enough time to catch all the things that only pop up periodically. Less than six months will give you some insight, but not clearest picture.
Now add it all up. Are you surprised at the places your money has been going? Which categories brought the biggest surprises? For the couples I work with, it is the small purchases made regularly, which add up to big money, that bring the wide eyes and gasps. They never imagined that their $10-a-day habit actually added up to so much money.
Once you know where your money is going, you’re in a much better position to decide how you want to spend it. While it’s all very well and good to say you only plan to spend $400 a month to feed your family of 6, if you’ve been spending two or three times that, your $400 budgeted amount may be nothing more than wishful thinking. When you end up going over, you’ll blame the budget with a song like this: “See, budgets don’t work.”
It wasn’t the budget that didn’t work. It was you. Yup, your unwillingness to do the work to see where the money actually goes meant you were just grabbing numbers out of the air when you came up with that budget, instead of working from a place of knowledge and purpose.
January 24, 2012 at 8:42 am
I use Quicken for tracking purposes, and have for a very long time, so changing now wouldn’t help me, but I agree, if you are not using any system try this out, or if you feel your current system is failing you, try something different! Doing the same thing and failing with it, is not a good thing.
January 24, 2012 at 8:57 am
I agree Gail – we are long overdue for a refresh..we’ve been on the jars for three years now and are staying ‘more or less’ within the budget – still getting rid of the debts and increasing savings….but I don’t have as good a handle on knowing exactly what is going where as I once did.
It’s always good to relook at the expenses.
January 24, 2012 at 9:10 am
I think you should use 18 months of paperwork, if you have it. That way you cover a full winter (heating costs) and any major repairs and unexpected expensed throughout the school year.
January 24, 2012 at 11:50 am
I agree that you should use as much history as possible, but I think that the act of doing that turns people off. I say do what you can with the historical, then make a budget, try to stick to it and track every single cent….then adjust.
If someone has spent so long with their head in the sand, the idea of digging out can lead to procrastination.
Once you’ve been budgeting, TRACKING and adjusting for 3 months you should have a pretty decent handle and be more confident in tackling the backlog and the future plans.
January 24, 2012 at 11:51 am
Great advice – I started my current job in April, and one of the advantages of working a desk job in front of a computer all day is that I keep an excel spreadsheet tracking every expense I make and categorizing it (along with running monthly totals). After a couple months, I used it to develop my budget.
I know it can be difficult to keep track of all of your expenses, but for those who work in front of a computer all day, it’s relatively easier to get into the habit of jotting down every dollar you spend. I do it either immediately when I get back to my desk (for lunches, coffees, etc.) and in the morning for all of the expenses from the previous evening.
Not only does it show you where all the money goes, but the constant practice of inputting in your expenses right away forces you to own up to all the little things you spend on, and you become much more aware of not spending on the little things (or if you do, cutting back somewhere else in the budget!)
January 24, 2012 at 11:51 am
Thanks, Gail. We just had a request from my FIL for a copy of our budget spreadsheet and I’m going to forward this link to him. Easy to use with lots of instructions sound just about perfect.
January 24, 2012 at 11:53 am
I keep track of everything in a spreadsheet I made myself. It lists everything and has space for me to include the unexpected/irregular things that come up. I can go back three years to see how things have changed (which they haven’t really other than paying down debts). I also have a sheet that shows my rental property to make sure that it is looking after itself, as well as a sheet that lists all of our debts, their payments, interest, and I keep track of the balance with every payment towards it. It works for me but I am looking to update it so that my husband will use it as well.
January 24, 2012 at 12:01 pm
This feels like Christmas to me! I’m so excited to read it!
January 24, 2012 at 12:04 pm
I use Quicken too, and even though I’m not mathematically inclined, by any stretch of the imagination, I LOVE keeping track of my finances and seeing where every penny is going. I often review or compare specific categories (for example: groceries verses eating out) to see if there’s any place I feel I’m spending too much, or to make sure I can afford a little splurge every so often. It’s a wonderful feeling knowing where I stand financially at all times. It’s not a lot of work, so long as you stay on top of it, and as for it being boring? Well, in my mind, it’s much better than the stress and drama of not knowing how much you have, going into debt every month and taking a wild guess at your average living expenses. But hey, to each their own, right?
January 24, 2012 at 12:43 pm
I have an iPhone app that allows me to budget and then keep track of spending against budgeting totals. It’s great because I always have my phone and can quickly note a transaction pretty much as soon as it occurs. I find that my spending often doesn’t match what I budget – I consistently go over on my “meals and entertainment” budget, for example, and really need to sit down and figure out what exactly I’m spending on and whether I want to cut back or budget more. However, the discipline of keeping track also keeps me honest and prevents overspending on the overall budget – if I want that additional restaurant meal when the meals budget is blown, I have to transfer the money from vacations, or gifts, or somewhere else. For anyone who’s curious, the app’s called “spend” and it’s amazing!
January 24, 2012 at 12:58 pm
I pay for everything that I can on my Mastercard (paid off fully every month). The only thing not on the card is mortgage, utilities, house taxes, life insurance, this is only because they won’t let me pay for it through the card.
I download the transaction every 1-2 days to excel and categorize them. This shows me at anytime of the month how much I’ve spent on each category. It then spits out the spending analysis on another spreadsheet.
I set side a certain amount for each category each month. Then I try to stay below that limit every month. It does mean that most months I have a surplus in almost all the category. However, I’m scared to lower the limit just in case some months are higher, because then I “failed” to be below budget. Then every 6 months or so, I move the excess to boost our emergency fund.
January 24, 2012 at 2:01 pm
I use a basic Excel spreadsheet. Anything I spend money on, whether it’s gas for the car or even a cup of coffee, gets entered into the proper category (food, transportation, etc). Each month I create a similar spreadsheet with new budget amounts depending on what’s going on. For example, next month one of my cats has her yearly vet appointment, so I’ve budgeted my pet expenses higher for that month knowing that appointment is occuring.
I will say though that my method doesn’t always mean the percentages Gail recommends add up. The 25% “Life” category is one that frequently goes over, even without excessive shopping. (I’m working on refining that.) However, I do at least know where my money is going and why, which is a huge step for me.
January 24, 2012 at 3:01 pm
Gail, man o man do I have alot to thank you for. I have been wanting to send this for a while and share it with others, here it goes in a snapshot! about 2 years ago my life was turned upside down, major health problems, lost the love of my life, my home and gained so much weight being depressed about it all. I had 45k in debt besides my car and mortgage……. all yes, from crap!!!! living beyond my means and not tracking anything i spent. I started to watch your show, read your books and then your online blogs. Thanks to you and everyone else on here i was able to get back up and get back on track. In the last 1,5 years i was able to pay off 30k……… of debt!
moved with a much lower mortgage and carrying costs, incresed my income, lost the weight and have been able to eat my 5 meals a day with about 40 bucks a week!!!! who knew haha. I started to value what really matters in life. I was living a lie like most others in this world, looking like i had it all but really, i just had debt and did not care. So it is possible to come back from the brink everyone. My health, wealth and happiness are through the roof! I know challenge myself to see how much i can save every month, not spend! I live a full life, travel often and love life again. Thanks again gale and all the bloggers 
January 24, 2012 at 3:17 pm
Thanks Gail, I am a big believer in your message, so critical in a time of huge personal debt. I agree tracking expenses is a first step in money management, but it can be labour intensive. I like to make my systems as automated as possible.
Some commenters have mentioned software.
I am a recent convert of Mint.com. Not only does it track spending, it also makes a budget based on your past spending. All in real time, mobile, or on the desktop.
And this article helped reassure me that there is little risk to such a system:
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/mintcom-helps-you-stay-on-track-but-at-what-risk/article1865164/
January 24, 2012 at 4:06 pm
I’ve never used your system (though I like watching the show and seeing others use your system
). I do all of my money tracking in Microsoft Money (which was sadly discontinued but I continue to use it). I have things categorized and subcategorized. At the end of the year (and throughout but specifically at the end) I compare this year to last and to the year before, see where spending went up and why (since it’s often not bad that it went up – like our gas expenses and insurance expenses went up this year – but we got a 2nd car so it made sense)… If the ‘why’ part doesn’t make sense, then I know I have a problem and can figure out what to do with it!
I currently have every transaction I can anticipate until December 31, 2012, with estimates in for food/gas/birthday gifts/other holiday gifts/etc… I like being able to forecast where we will be tight and what we need to do about it. I have overtime available to me at work which I don’t usually take advantage of (family time is important!) but if I know that in March we are going to be very tight (or short!), then I can work an overtime shift before then to loosen things up a bit.
January 24, 2012 at 7:08 pm
John — I’m not a lawyer, but a word of caution about Mint.com — you may be contravening the terms of your agreement with your Bank. Many Bank agreements require you not disclose your passwords to anyone. If you experience some sort of breach on your account, the Bank may not cover any of your losses. I would also be concerned if Mint ended up having a rogue employee who had access to all of my Banking information. Just my 2 cents.
January 24, 2012 at 8:20 pm
This is awesome, I am gonna have to check it out for future use! Thanks!
January 24, 2012 at 8:23 pm
Really? Five bucks? You really had to charge your readers for these documents Gail? Really?
January 24, 2012 at 9:22 pm
@ DebtGirl. For all of the selfless and meaningful things that Gail does for people…you have to question a five dollar tool that could change someones life. Really? Is missing a cup of coffee two days in a row worth it? Yup I think so…thanks so much for this awesome tool Gail.
January 24, 2012 at 9:40 pm
To those who use Quicken – I’ve tried it but have been disappointed. I found it was hard to set up and then find discrepancies in what I pay for categories. Since it takes my account AND my credit card info, I don’t find it accurate. For example, I would put the amount I pay for a gift in the “gifts” category but if I charged it to my credit card and then paid it, am I not counting it like I paid for it twice (ie. in the gifts category and then again in the debt repayment category). Hope that makes sense – am tired!
I. like others, have been using my own spreadsheet based on what Gail used to have posted for her interactive sheets. I found that quite helpful!
@ working at it – Way to go! Congrats!
@Gail – just thought I’d let you know my children and I just started reading a story each night from the Dr. Seuss collection my daughter received as a baby and we are LOVING it! I think of your lessons each time we read one!
January 24, 2012 at 10:09 pm
By the way – @ Becky – I agree with you! There is a lot of wonderful stuff on this site that Gail offers for free!
@ Debt girl – Gail does still have her interactive resources posted for free under her Resources section. I don’t know if they are exactly the same thing but if you haven’t yet, maybe try them to see if they fit what you need first.
January 24, 2012 at 10:39 pm
I thought $5.00 was a deal. Thank you, Gail, for all the work that I know maintaining this website entails. Your resources have been invaluable.
January 25, 2012 at 12:23 pm
@ debtgirl
Gail is one of the most selfless people any of us have ever encountered. She has every single last right to charge for these tools. Particularly given all the COUNTLESS HOURS she puts in, offering us all advice from kid expenses to curries.
Gail – thanks so much for all you do.
January 25, 2012 at 1:29 pm
@ debtgirl
Really? Considering we don’t pay for any of the information she provides on her website, and the information is I think $ 5.00 is a small price to pay for the spreadsheets and instructions that she has taken the time to create herself. If she was just doing this to make money she would nickel and dime us for all the FREE things she provides
January 25, 2012 at 4:49 pm
How do you deal with multiple type purchases from one store. I can go to Zehrs and buy car windshield wiper fluid. Do I need to break down my receipt into different categories? Or can I just say groceries and count it all as one. What do you recommend?
January 25, 2012 at 5:33 pm
@ Diane
We use an Excel spreadsheet with categories for Food, Household, Auto, etc., etc., etc.(probably more than we need!). Our Superstore bill will be broken down by category — the spatula and toilet tissue we bought will be entered under Household, the windshield washer will go into Auto, and so it goes.
January 25, 2012 at 8:07 pm
LOL.. geesh, sorry! I just figured if they were so important to have, she could share them out for free and yes, she has lots of great resources, but I kind of meant it in a “ha ha” really way! As in… FIVE BUCKS really?
Glad to see there are so many Loyal Readers (kick ass) here! That is awesome!
Ummm, loosen up!
It’s all good!
January 26, 2012 at 1:58 am
Sadly, many people seem to think they need to pay for something in order for it to have value. It will also mean that the people that buy it will be a bit more likely to actually use it. Heck Girl Guides of Canada charged us that much for the unit bookkeeping forms! Now that one ticked me off.
January 26, 2012 at 10:06 am
Keep up the great work Gail – nothing is as important to your finances as keeping a budget and sticking to it. Thanks for the new tool, I will definitely have a look.
January 27, 2012 at 11:37 am
@Tyler-Chris — I also stare at my budgeting spreadsheets at work! Shh don’t tell Bossman.
January 29, 2012 at 3:47 am
I use YNAB (You Need A Budget). It’s behavior changing.
January 30, 2012 at 9:46 am
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