Do you sometimes get to the end of the month and wonder where your money went?

Are you living from paycheck to paycheck and believe that you can’t get ahead of the bills and save?

Do you sometimes make impulse purchases and afterward feel guilty or privately admit to yourself that you made a mistake?

If you recognize yourself in these questions, you’re not alone. Many of us have struggled with spending above our means or spending on frivolous things that provide short term pleasure and long term debt.

In order to get your spending under control and in order to budget, you need to have an understanding of how you’re spending your money.  If you are spending excessive amounts on a “hobby of the moment” or things you want but don’t really need, documenting just how much you’re devoting to those types of items is critical.

Over the last decade or so, every 3-4 years I’d sit down in December during the holiday break and try to sort through our credit card statements to figure out where we were spending our money. It was an inexact science at best, and of course it didn’t adequately capture cash spending.

I did the same last December and came to a couple of conclusions: 1) we charged WAY too much last year – the number is high enough that I’d be embarrassed to share it* with you, and 2) I needed to get a better, more precise handle on our spending so that we could control it more effectively and save more.

*I should point out that we always pay off our credit card balances in full each month – but an inescapable conclusion I drew from my analysis last year is that we (read:  I) simply spent way too much on impulse purchases of what could largely be described as crap.

As a result I developed the “Expense Analysis” Excel files which are available free on the downloads page. (I added a 2009 file recently; the year, however, is immaterial – the only thing which changes with the year is the worksheet labels. I did clean up a couple of formatting issues on this newer file, however.) With this and some discipline, we’re able to track precisely where our money is going.

9 months into 2009, I have a very clear picture of how we spend; a few examples:

  • 4.2% of our spending is dedicated to Insurance – home, auto, motorcycle, umbrella liability, life
  • 3.7% goes to utilities – elec, gas, sewer, water, etc.
  • 8% went toward trips – mostly back to NY to see family, plus a recent trip to Vegas
  • 1.7% was spent on clothing and jewelry; this is considerably lower than last year
  • 18% of our spending is on our mortgage, but this equates to a fairly modest percentage of our gross income
  • On average we spend $460/month on groceries (this includes stuff like aluminum foil, shampoo, laundry detergent, and the like; I’m obsessive-compulsive, but not enough to split out that stuff)
  • In addition, we spend about $200/month dining out and about $50/month on wine (an occasional case of reasonably priced wine)
  • Those three categories (groceries/dining out/wine) add up to $710/month (for my wife and myself)

In the course of tracking all this – and by the way, doing so is not all that difficult – a funny thing happened. The ~$400 I spent on auto detailing supplies last year – less than $35 this year. The 5 dress shirts, 2 sports jackets, pair of dress shoes, and 1 suit I purchased last year, to the tune of $1000 or so – thus far this year I’ve purchased 1pair of slacks, 1 shirt, and a travel vest. $500+ on online food (iGourmet, Williams-Sonoma, etc.) last year – this year, <$100 worth of coffee from the Arizona barista I’ve written about here. Golf: (we both play, are members of a club, etc.) – this year we’ll spend $1500 or so less than last year! The list goes on and on.

What happened?

Simple: if you have to write down what you’ve spent during the day each night, you’ll begin thinking a lot harder about spending; if you track where your money’s gone for just a month or two, you may be surprised by just how much you’re devoting to stuff you want, versus stuff you truly need. Your behavior will change. Unless you’re completely out of control, you’ll save more. You’ll easily identify areas where you have opportunities to cut back.

How to use the file

There’s a tab in the workbook for each month. All I do is print out 7-10 day segments during each month and put them on the desk in our kitchen. Each day Pat and I write all our expenses on the sheet.

Once a week or so I’ll enter them into the workbook on my PC. Annual spending is totaled on a total page and automatically graphed.

This workbook is not a thing of beauty, but it works. If you need to get control of your spending, a great place to start is by tracking every dollar you spend. Download the file for free – see the “FREE Downloads” link at the top of this page. Click here to see an earlier post about the workbook, including a few screenshots.

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