I recently received an email from Holly, who has a some questions about tracking spending, and covering expenses as they occur:
I’m atempting to really focus on budgeting better this year. I have not really successfully tried a great method on paper/computer — alot of it has just been in my head over the years. (which is not the best method of course!)
I have several worksheets for monthly budgeting that I’m going to try. The place I get stuck is what next, after I’ve gotten the basic budget for the month, then how do I do the nitty, gritty of tracking all the spending and reconciling it all together at the end of the month? It seems like it could be so tedious.
I’m also at a bad place where I’m currently using most of my current month income to pay last months bills (i.e. I put it all on my credit card and then pay off the credit card the next month. I do however pay my bill completely off, so I’m not in cc debt) I would like to get to a place where I am using the current month’s money to buy current. (if that makes sense)
Any advice you have would be great.
First off, let me congratulate you on paying your credit card balance in full every month. That in itself is a great accomplishment.
OK, so let’s break down your questions one-by-one. I am not addressing budgeting as it sounds like you have a plan for that.
- Tracking Spending. One of the best tips I can offer to reduce the tediousness of tracking spending is to reduce the amount of transactions you have! That being said, I asked some of my PF blogging friends which software they prefer so I could get a variety of opinions. The most common responses I got were Mint.com if you want to track online (it’s free), or to use a software program like Quicken. It depends on what you want to do with the information. If you are just looking to categorize your spending, you could do it yourself in an Excel spreadsheet. Whatever you decide, I would recommend updating your information daily. I think that recording expenses frequently will make you feel the pain of spending more since you are reminding yourself every single day what you are spending your money on. Plus, it would be quite a chore if you recorded all your expenses at the end of the month. You might find yourself rushing through inputting the data instead of truly ‘listening’ to the information if you do it all at once. Remember, you are not recording just for the sake of recording. You are tracking expenses so you can learn something. The software you use is not what is important. You could scratch your expenditures on a rock if you wanted. What matters is how you interpret the data, what you learn from the data, and the plan that arises from the data. You can have the fanciest software in the world at your disposal. If you just mechanically enter your expenses and walk away, your financial situation will not improve one bit, even though you are ‘working hard’ at tracking your spending.
- Paying ‘behind’. I do not think you are alone in that you are paying for your spending from last month with this month’s paycheck. Some people avoid this issues by paying for everything with cash. That way, they will not make any purchases that they cannot pay for that minute. However, you are paying your credit card bill in full each month, and hopefully getting some sort of cash back or reward points for using your credit card. (Side note: do not ever use a credit card with an annual fee. There are plenty of ‘free’ cards that offer awesome rewards.) If you were not putting your expenses on your credit card, would you be able to pay for your purchases with cash? Or do you have a very small buffer in your checking account either because you plain do not have the money, or you don’t want your money to sit in a non-interest bearing account? If you are using your credit card to only buy pure necessities, then keep using that card. However, if you think you might be picking up extras off the shelf because you don’t have to worry about having the cash in your wallet, then you might want to consider going to an all-cash system.
My overall advice would be this: Track your spending as it happens, and really think about the expenses you have. Even involve a friend if you feel that will make you more accountable. Think of a friend that would shake their head if you told them you spent a hundred dollars on another pair of boots instead of one that would say “Sweet, can I borrow them?”. Is there a friend that might want to start tracking their spending too? You could make it a competition to see who can save the most, or whatever, and have celebrations for success! Anyway, hopefully tracking the spending will stop you from spending somewhat. Keep that extra money you gain each month in your checking account until you have enough to cover the next month’s expenses. It may take awhile, but hopefully each month you will be motivated to make that buffer greater and greater until you finally achieve that goal.
Once the goal of saving a month’s worth of expenses is accomplished, think of a new goal and put your savings toward that. There are plenty of online savings accounts you can open where you state a goal you have in mind (like vacation), and you can deposit money into that account at any time. (I use Smarty Pig for this purpose.) Come up with goals for saving so you always have something in the back of your mind that you want to accomplish with your money, instead of spending it on things you see day-to-day at the store without even noticing. It is so rewarding when you see those savings balances increase each month. Or, if you find it more motivating, deposit money in the account each week. Whatever makes you happy.
However, if you are already spending the bare bones amount each month, then all you can really do if you want that buffer of not ‘paying behind’ is to put a sum of money in your checking account (if you have it saved somewhere) to give you that peace of mind of having enough to cover your current month’s bills. Just don’t use it as a license to overspend.
Regardless of your how much you do or don’t have saved, here are some money saving tips you can use to try to make each paycheck last a little longer:
- Be careful at the grocery store. Most things go on sale at some point. Buy items when they are on sale and stock up on enough to hold you over until the next sale. Yes, that does mean that some weeks your grocery bill may be higher, but your food will last you much longer. Never pay full price for vitamins or toiletries as CVS has fantastic sales on these items every single week. For example, I rarely pay more than 50 cents for a tube of Crest toothpaste. Get to know what is a good price for staple items and take advantage when you can get a mega-deal. Buy fruit that is in-season, as the cost of winter produce can really affect your grocery bill.
- Plan your meals ahead of time, and base at least some of them on what is on sale at the grocery store. This will hopefully keep you from eating out, and will most likely be healthier for your diet.
- Many people hate to do this, but clipping coupons can be very effective, especially when they are combined with store sales. Regardless, do NOT enter Kohl’s, Bed Bath and Beyond, etc without a coupon in hand. If you find yourself at Kohl’s and you don’t have the coupon, tell them you left it at home and quite often they will give you the 15% off anyway (assuming you have a Kohl’s charge card).
- Eliminate empty calories from your diet. They harm your body and your pocketbook.
- Since gas has gotten quite expensive, combine errands to reduce the extra miles put on your car and the amount of money wasted on gas.
- If you have a programmable thermostat, read the instructions and use it. If you don’t have one, install one.
It sounds like you are on a great path toward gaining some financial security. You are trying to put a plan in place, and really want to evaluate your spending. You already do not have credit card debt, which really puts you ahead of the game. (Side note: If people do have debt, it is good to use a debt snowball spreadsheet or something to keep a close eye on debt elimination progress and goals. Also, know where your credit score falls in the FICO credit score range and make sure you clear up any inaccuracies on your credit report.) Now, I think it would be great if you set some attainable, quantifiable financial goals and really worked toward them.
I would love if you checked back in and let us know how you are doing. Feel free to email any further questions, and hopefully this post addressed the concerns you had.
Readers, what advice would you give to Holly?