Friday, 20 August 2010

Tracking spending

When you first go looking for information on simple living or household financial management, the suggestion that you should track all of your spending (usually for a minimum of one month) will always come up. However, the anti-planner in me always balked at the thought of such organisation and the idea was always dismissed.

The carrot of sound finances to pay for that eventual homestead/cycling holiday/banjo means I have finally been summoned by my inner-accountant, and have begun to track my spending. Ironically I bought a notebook to do it in, but it was 75% off and it is very pretty (which obviously absolves me). I have drawn a date column, followed by an 'amount spent' column, a 'payment method' column and finally a space to record the brief details of where and what I spent the money on. Some people choose to itemise every purchase, I write a general description (for example 'Corner shop - baked goods') and instead am keeping all of my receipts. I also don't list automatic payments/direct debits as these appear on monthly bank statements. At the end of every day, I tot up the amounts (and weep...).

This exercise, after only a few days, has been revealing and my inner anti-planner has been banished by my inner-accountant until I require her services for spontaneous fun. As it turns out, long term financial planning does not require the same mindset as throwing spur of the moment picnics, coffee shop stops and last minute jollies to the beach, which might be where I was going wrong for all those years.

I realise now that most of my small spending is done with cash; most of it is spent on snacks from the corner shop. In the past when I have read my bank statements and seen cash withdrawals, I have always explained them away to myself as cash for bus fares, pints of milk and other last minute essentials, which actually represent a minority of my cash outgoings. I also noticed that we end up buying essentials at uncompetitive prices because we have run out of something or I have forgotten them in the bulk shop.

Keeping the diary has made me reluctant to spend, because I do not want to accrue receipts or see the actual numbers tallied up every day. When I forgot to pick up my packed lunch, instead of going to the shop and buying a sandwich, drink and treat, I bought a carton of milk and used up the last of the cereal I keep at work. Just the disincentive of having to note down a figure saved me the best part of £4. So whilst the spending diary is an exercise in observation, I realise it is also motivating me to spend my money more wisely. I will use the information to tweak our monthly budget, our shopping lists and also my daily routines.

So now I am evangelical about the ways of the spending book, here are my tips for tracking spending:
  • Start a diary - a notebook small enough to carry around everywhere. I have found a rows and columns format easiest, but some people may like to write out sentences. The minimum information you need to record is the date, the amount, the payment method and the where/what on. Some people use a spreadsheet instead or as well as a notebook. Do whichever you find easiest.
  • Ask for and keep all receipts. Highlight any gratuitous spending to help you recognise your pitfalls.
  • Actually open and read bank statements. Together with your diary, they will help you build up a complete picture of where the money goes each month.
  • Get your partner on board to build a complete picture of household spending. I have finally convinced my OH that telling me about every penny that has left his pocket during the day is a scintillating use of his time.
  • Record EVERYTHING you spend, no matter how small the amount. 
  • If you are using the book to motivate you to spend less, place a reminder of a juicy financial goal on the front cover or inside. It could be a picture of a holiday destination. Mine is the total number of pennies I need to save for a deposit on our some-day homestead. Yes, I did say pennies.

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