A Spend Monitoring System

When we start examining our spending, it’s usually a good idea to take a month or two to do a detailed spending analysis. This typically involves recording and analyzing every aspect of our expenditure to capture all our expenses, including those that typically slip under the radar.

Once we’ve done that, we execute a turn, a motivated, coherent adjustment to certain aspects of our financial lives. This includes things like

  • Setting up and paying into an emergency fund
  • Picking budget categories to tackle and setting up projects to tackle them (groceries, utilities, etc)
  • Scheduling a half-day each month to do the next month’s budgets, incorporating lessons learned so far
  • Finding new sources of income, or enhancing existing income

Going forward, we’re going to need to keep track of our spending and our financial improvement efforts, to make sure the effort bears fruit.

It’s not realistic to continue to monitor every single aspect of your spending, because that takes too much time and effort, and you have more important things to spend your discipline and attention on than recording the fact that today’s commute cost you £2.40.

You need to find a long-term budgeting and tracking exercise that works for you.

How to track your spending over the long term

One Size Does Not Fit All

While the initial exercise is the same for everyone – monitor every single penny you spend – the ongoing exercise needs to be tailors to your particular circumstances.

The monitoring system you create for the next 12 months needs to take into account the things you’ve learned from your initial examination of your finances, and focus on the areas that have the most effect on the overall outcome. It also needs to keep an eye on your overall financial situation, so that if that number takes a turn for the worse, you can take a step backwards and figure out why.

As such, you will not need to monitor everything I am going to mention here below. You need to pick and choose the parts that are most relevant to you. There may even be things you need to monitor that I haven’t included or broken out.

The first part, however, is for everyone.

Your Financial Key Performance

Your key performance is the set of numbers that tells you how well you’re doing overall.

I suggest tracking a set of three numbers. If you’re like me, you jut want a spreadsheet tracking this over time. If you’re into bullet journals, let your creative mind go wild, but bear in mind that the message is more important than the format. You need to be able to see at a glance how well each of thse numbers is performing, compared to your starting point, and compared to targets you set yourself.

Your Net Worth

This is your overall value. It includes the value of every single thing that you own that could be sold for money (property, cars, etc) at their resale value, less every debt you owe. On the asset side, include your bank accounts, the value of your home and car, savings, emergency fund, investments and amounts owed to you that you can certainly collect. On the liabilities side, include all your debts (mortgage, loans, financing, student debt, etc). Subtract the liabilities from your assets and you have your net worth.

Your Available Funds

This is the cash you have access to, not including overdrafts or credit limits. It’s a subset of your net worth. In includes your cash, bank accounts, accessible savings and emergency fund. It’s a measure of your financial ability to respond to what life throws at you without having to rely on debt.

Your Monthly Net Figure

At the end of each month, you should measure the net effect that month had on your financial situation. This is pretty simple and you don’t ned to measure your spending in detail to be able to do this.

Take your available funds at the end of the month and subtract the available funds at the end of the last month. Provided you haven’t bought any property or a new car or anything like that, the number you get will be the increase (or decrease) in funds during the period. You should have a target for this. If you want to add £500 to your emergency fund each month, for example, this number should be at least £500 each month.

That’s it for the basic information you should always be tracking. You can add more to this but it should be easy to calculate in a few moments at the end of each month. Don’t turn this exercise into something difficult or complicated.

Tracking Categories

Here is a list of other things you can track. As mentioned above, you need to pick and choose what you’re going to take time for because you’re going to be doing this for the long haul and you don’t want to make it a burden for yourself. It should be interesting, motivating and useful, not a chore.

Your Categorized Spending

Much like the initial exercise, it’s useful to track how much you spend in each category every month. It is not realistic to do this by measuring every little transaction you have, so you need to find some shortcuts that make it easier, even if you have to trade a little accuracy in the process.

I do this in 10 minutes every morning. Here is my process.

  • Log into bank accounts and download spreadsheets of latest transactions
  • Add transactions to my overall spreadsheet, putting the right things in the right columns by copying and pasting
  • Choose a category to the right of each item from a drop-down list (like in my downlaodable tracking spreadsheet)
  • My spreadsheet has a dashboard that compares what I’ve spent to what I intended to spend

Obviously there’s a section called “cash” which has all my cash withdrawals in it, and I no longer track my cash spend because it’s too tedious (although I do redo that exercise for one month each year to see what’s changed). A lot gets wrapped into that section and I have to make sure that doesn’t grow out of control.

While this is useful, you don’t have to track your spending by category over time. I do it because I have an accounting background and it’s very easy for me to do very fast. If it takes you too much time, it may not be worth the investment.

Another way of doing this is to use one of the available apps on the marketplace and I’ll be doing an article reviewing those some time soon. I’ve always had a few issues with these apps because the interfaces are slower to use than a spreadsheet on my own computer, and I don’t need 80% of their functionality, which makes paying for them a little annoying.

Your Groceries

Unless you have this nailed down, this is a category worth tracking in its own right. I suggest doing it like this:

Take the total amount you spend on groceries each month and count the number of meals you cook at home.

Divide the total cost by the number of meals (and the number of people, so 1 meal for 3 people counts as 3 meals) and track that number – the cost per meal per person.

Alternatively, just measure how much you spend per week or per month, or on average per day, on groceries. It will give you an idea of the importance of the category in your overall finances and will warn you if it starts to grow out of control.

In conjunction with meal planning and intelligent grocery shopping (and if you’re good at it, extreme couponing – don’t look at me, it’s really not my thing), this category alone can free up enough money to build an emergency fund.

The Contract Calendar

I’m going to create a printable and a spreadsheet for this, because it’s an important category to keep under control.

You should have an annual calendar somewhere, and on it you should note the renewal date of every contract you’ve signed.

A week or a fortnight before that contract is up for renewal, you should be comparison shopping for a better deal. You should take notes of all the better offers out there.

Since changing suppliers is always at least a bit of work, you should always give your existing supplier the opportunity to match the best offer you’ve received. If they decline, you should have prepared the exact information you need to change supplier. This includes any reference numbers (gas meter number, electricity supply number, car license place and chassis number, etc), any current readings (gas, electricity, water), and the phone numbers for new signups.

You should actively switch to the lowest cost provider (at the same level of service and quality) for all these long-term contracts, and this includes home contents, business liability and car insurance, all your utilities, cable, internet, loans etc. This can be worth hundreds each year, even if each individual contract seems like a small amount.

You should also ask yourself every time whether you need this contract. We all needgas and car insurance, but we don’t all need a subscription to a glossy magazine.

The Debt Countdown

There are numerous strategies to pay down your debt. Some focus on the psychological and others on financial efficiency. Pick whichever, but then track it aggressively. Write it up on a piece of paper and pin it to your fridge and make a point of keeping track of 3 things:

  • The amount left on each loan or liability
  • The amount you paid this month on each
  • The total amount of interest you were charged last month

That last one is important because it’s a measure of how much of a drain on your financial situation your debts are. The sooner you get rid of them, the sooner that number becomes a zero, and the sooner you plug that leak in your finances.

Other Categories

There are so many things to track that I couldn’t possibly list them here. As I said above, you have to track what’s relevant to you. Here is a list of suggestions you might want to look into. If you want me to go into detail on one of them, please get in touch.

  • Overall car costs per mile/day. Divide your total car costs for the year by your mileage and the number of days you used it. If you’re an occasional user, there’s a point where it’s cheaper to rent than to own. I’m there. I’m a subscriber with ZipCar because the use I have for a car doesn’t justify owning one.
  • Commuting costs. This is often one of the larger numbers in people’s budgets, and it’s sometimes important to know whether you need to reassess how you get to work and back, or perhaps even where you work of where you live, based on how big this number becomes.
  • Snacks and lunch at work. This number has on occasion gotten completely out of hand for me. Check your coffee/croissant/avocado and toast addiction’s effect on your overall finances.
  • Average Daily Spend. This isn’t measuring any one thing, but measures everything at once. I actually have this number calculated daily as a consequence of my categorized spending tracker I mentioned at the top of this article. I take the total costs over the last 30 days and divide by 30. Since I pay large sums on the same day every month, there aren’t too many unexplained spikes, but if it starts to trend upwards I know I need to check my habits, and if it jumps because I bought my wife a big gift, I know I need to watch things for 30 days until the average is back where it belongs.
  • Anticipated Major Costs. We all go on holiday, we all occasionally need to service our car. These large costs break budgets if they’re not planned for, so you need to plan for them. The first step is to put them in the same calendar as your contracts (see above) so you at least see them coming. The second step is to set up pots of money to which you contribute monthly that pay for these without writing off months of effort. An article on this is in the works.

What would you add? Suggestions below or by email and I’ll add them to the list as the article matures!