Keep a daily financial diary, record your monthly income and outgoings, and be brutally honest
It’s the end of week 3 of my ‘spend only on the essentials’ and ‘do a financial audit’ January, and I have to confess I’m looking forward to reaching the end of the month. Though I’ve found it surprisingly easy to do without some things (only three coffee-shop-coffees so far, the black coffee from the machine at work isn’t completely undrinkable…), I’m also feeling that my self-denial across the board probably can’t be maintained long-term.
The urge to spend on enjoyable ‘treats’ has started to creep in more over the past week, whether it be a latte, a glass of wine (I’m still abstaining), or a Friday night takeaway. I’ve managed to keep up my willpower mostly because I really want to see how much money, if any, we’ll have left over at the end of the month. We’ve been dipping into savings for far too long, and it’s one of the things we have to stop if we are ever to find extra money for saving for the future. I’m hoping to see that we’ll have some money left over to ‘play with’, both in the sense of having money to spend on enjoying ourselves, and having some money to do something sensible with. However, I’m worried that I’ll discover that even with making a concerted effort to cut back, we’ve spent more than we’ve earned. Whatever the outcome, it’s something I really want to know so that we can start to do something constructive about it.
Facing up to the truth is something that has cropped up in the few personal finance books I’ve read since the start of the year. Thanks to my local libraries, I’m surrounded by several piles of books with huge amounts of useful information, and all completely free of charge (well, paid for by the council and our taxes, but you know what I mean!). They say that before you can start to address how to achieve your goals, you have to know what you are dealing with. Analysing where you are and what you’ve done wrong might be the first and worst step, but you need to be honest in order to ultimately come up with a plan of action. Other than actually writing a list of what your goals are, which seems to me to be the fun part of the process, they generally say you have to do two (far more tedious, in my opinion) things to get accurate information about your current situation:
1/ Track your spending on a daily basis. Keep a financial diary / spending log and write down exactly what you spend to the penny. Use a notebook, notes in your phone, or use an app, but do it every day, at least for a week, and ideally for a month. Some also advise including how you are feeling or thinking when you’re spending, to help you identify at the end of the month if there are particular emotions or thoughts that influence your behaviour.
Monthly summary of income / outgoings
2/ Write down your financial CV or record of your monthly income and outgoings. Separate your outgoings into different categories, fixed and discretionary, and use the spending log to help. Some will be necessary expenditure such as costs related to your home (mortgage / rent, electricity, gas, water, telephone, TV, council tax, buildings and contents insurance), also transport and food. Some will be less necessary, such as entertainment, unnecessary food and clothes. There are numerous spreadsheet templates and budgeting tools online that can help with this, for example the budget planner on Moneysavingexpert.com , or the budget planner from National Debtline , or the Citizens Advice Bureau budget tool.
I’m having no problem doing the first thanks to my Spending Tracker app, and have started a spreadsheet for the second. However, it’s taking me much longer than the hour / afternoon the books seem to suggest this should take. While it’s easy to go through your bank statements for regular expenses, it’s quite difficult to work out accurate figures for other expenses that happen infrequently, or that cost different amounts each time.
I’m probably making it more time-consuming by also collecting as I go along other information about my finances – assets (savings, investments, house, car for example) and liabilities (credit card debt, loans, mortgage etc). However, as I slowly replace loose scraps of paper with notes in one spreadsheet, I am feeling more efficient, and I also realise that once I’ve got the spreadsheet filled out it will be much quicker in future months.
I’m trying to focus on the sense of satisfaction I’m getting from slowly collating this information, rather than the time it’s taking me to actually work though it all. I’m looking forward to the end of the month when I can sit down with both the financial diary and summary of income / outgoings, probably with a glass of wine, and see the reality of where my money is spent.