I have written a few posts about budgeting and finances, but I haven’t posted yet about my financial tracking and record-keeping system. So here goes!
In the last quarter of the year, I do a projection for the following year, month-by-month. Now that it’s almost September, I am itching to have a go at 2014 and see what it will look like! My finances have changed dramatically in the last 5 years because of major life changes: getting married, college savings, a child leaving home, savings for travel and retirement, and the introduction of TFSAs. It would never occur to me to continue with an old budget because every year is different from the last!
Looking at each month of next year laid out in a spreadsheet, I can see which months will be tough because of big annual bills coming due, and which months will be light and allow for savings.
The steps I take are:
- Record my starting balance in every account including cash at hand
- Note my expected income by month
- List all of the predictable bills and their average monthly amount (such as the power bill)
- List all of the irregular bills and their expected amount (such as car maintenance)
I plot these first and see what is left over.
Next I list all of the variable bills such as groceries and home heating, and give them a monthly budget. I do this using info I’ve collected over the past year about my actual spending, and make a projection. I try to be realistic – I am not going to turn the heat down to 15 in the winter!
Then I set savings targets. I save a high amount for retirement, and a medium amount for travel to see relatives.
After that I budget for things that are essential “over the long term” but are very flexible, such as clothes and gifts.
Finally, I add in the things that can be completely chopped if necessary, such as buying annuals for the garden, or buying music on iTunes.
Since I entered my starting balances, I can see what my balance will be at the end of every month in the upcoming year, if I stay on budget. I can even see my year-end cash balance, for example, I’ll have $1300 left over at the end of 2013 if I stick to my plan!
After creating the budget, I know at a glance things like:
- I’ll be able to save for a trip from June to September, when I’m not paying for heat
- I’ll buy new tires when I have a “3 paycheque month”
- I won’t be able to replace the roof this year
- I can accommodate the 7% increase in the water bill by attending one less concert!
All that is just a paper exercise compared to actually tracking spending. This year I decided to carry enough cash for groceries and gas for the car. Previously, I was being hit with a lot of debit charges from my bank. To make myself accountable, I ask for a receipt for everything, and if none is available, I write down what I spend. I tuck all the receipts and notes into my wallet, and twice a week, I enter them into my money software. Once a week, I check my bank balances online and make sure they match my own records, paying attention to payroll deposits and automatic deductions. Twice a month, I pay bills online that need to be paid manually. And once a month, I reconcile all the accounts.
The money software I use doesn’t do any forecasting, so I enter each month’s figures into my forecasting spreadsheet and compare my forecast to the actuals. I also make a little list of all the frivolous or unexpected spending I’ve done each month so that it’s staring me in the face! It helps me see trends – such as, I bought 5 books this year and haven’t read any of them yet – time to squash that habit!
I am trying to get rid of paper statements and bills, and they are gradually dwindling. I look forward to the day I don’t have file folders of paid bills!
One thing I need to do is schedule an annual review of investments, and an annual comparison shop for things like car insurance, Internet providers and heating oil delivery.
My biggest problem right now is that I am using an old software program for tracking my spending, Microsoft Money. I would like to use an app such as Mint, but I have two issues with it:
You have to enter your banking user name and password to give it access to your accounts. This contravenes your agreement with your bank that you will not share your account information with anyone, and therefore, the bank will no longer cover unauthorized transactions. It appears that Mint is very safe – no money can be moved around using the app. But you are still breaking your cardholder agreement with your bank.
If Mint stores your data on American servers, it is subject to the Patriot Act and can be accessed by the US government. While I have nothing to hide in my financial history, I would rather not make it available, either.
It looks like my best option would be updating from my old copy of Microsoft Money to a new version of Quicken. I hear they have an app, but it’s still somewhat buggy! I don’t think I could give up financial software and just use spreadsheets because I like the software reports too much.
What works for you?