Saturday, August 18, 2007

The Value of Tracking Your Spending

In the past, I mentioned that I am using Microsoft Money to track my spending and finances. Essentially what I do is the following:

1. Visit the PC Financial, Scotiabank, and Mosaik Mastercard websites and login to the online features.

2. In each case there is an option to download transactions to the program of your choice (Quicken, Excel, Microsoft Money, etc...). If you live in the states or have a US bank, you can set it up so that Money automatically downloads your information for you so you don't have to do it manually. I don't like this option because when it comes to finances you should definitely be in control of when information like that is sent over the net.

3. Once you download them, in each of your accounts in Money, the new transactions will be in bold waiting for reconciliation as shown below


The transactions in bold here are transfers to by credit card but any new ones would be similar.

4. At this point you can assign categories to each transaction. For example automobile -> gasoline, entertainment -> comic books, etc... Whatever you spend money on, you can categorize things to no end. This also works for income as well in terms of things like net pay, interest, and monetary gifts.

I perform these steps very diligently, downloading new transactions every week or so. However, I was assigning transactions to categories but not really seeing the big picture. I wasn't thinking about where the money was going other than "ok, $X spent on this, on that, goes in this or that category. I was pondering this when figuring that we should have about $800 per month to "play" with after living expenses were taken care of and we definitely weren't seeing our savings go up by that amount each month. Thus I did some digging.

Money has a nice feature that for different blocks of time you can see your expenses represented in either bar or pie chart format. This is our July 2007 Pie



When I sat down to truly look at where our money was going I was happy to see that approximately $300 was spent either unnecessarily or on one time fees (like electricity hookup). Why was I happy to see that much money basically go down the drain? It meant that things weren't as tight as I previously thought and that we had lots of ways to make improvements. I never would have realized where this money was going if I hadn't kept track of our spending. You should try it and see if you find some surprises on the way (ours was ~$100 on dining out).

As a closing note, after this exercise I am pleased to report that August is shaping up much better.

1 comment:

schaef said...

Yeah, they always screw ya with the initial fees and the like. Just so you know, they also charge you a fee if you change addresses but want to maintain the same land-line phone number.

Categorizing such a large amount of transactions in such a way that it will automatically answer your questions when you chart it, or whatever, is a difficult task. If you don't put enough thought into it, the categories may just be another column or row or cell colour in the spreadsheet.

It would be interesting if you could add multiple categories to single items in ways that aren't mutually exclusive, so that when you make a graph it will visually present the "greyness" or "grayness" of the category.

/whereas this dark-gray area could represent just kicking it