Wednesday, August 8, 2007

Tracking Spending

This is part 3 in a series about my journey from mindful consumerism toward a more simpler lifestyle. If you haven't read part 1: A journey of a thousand miles begins with a single step or part 2: Joe Dominguez , you might like to take a moment to read those first. :-)

Before I get too far into what I want to share in this post, I do want to let you know that we haven't followed all of the recommendations that were part of the tape series by Joe Dominguez. Some of what he suggested didn't work well for what we wanted in life and I will come back to that. I feel that's it's important with anything you read or hear about, to take what works for you and feel free to discard the rest. I know there are some programs that need all the necessary steps taken in order to work. But we're all unique beings and I don't really believe that there is a "one size fits all" approach to how we live our lives. :-)

So yesterday I was talking about money = life energy and about maximum fulfillment for the minimum amount of dollars spent.

Once we'd made our way through to the end of the tape series, we were interested in the concept of tracking our spending that is suggested as an essential part of understanding our money and spending more in align with our values.

How you track your spending isn't really all that important. Some people prefer to use some kind of computer budgetting program, others use their own spreadsheet set-up and others prefer a more "non technological" approach. I fall into the last category. :-) It was simply too many steps for me to have to turn on the computer, open up a program and enter my figures. I also like the portability of having a hard copy.

Once again it was frugal aussies to the rescue and the same person who lent me the tapes attempted to explain to me via email how she set up her spending book. Up until this time, we had written a budget of sorts for pretty much every year of our marriage. But we'd not been tracking our spending very well so we never knew whether or not we were under or over budget. This made our budget almost useless.

In that first 6 months I had been keeping a record of what we were spending on groceries - more to give me an idea of whether or not we were sticking within our grocery budget and how much I was perhaps "saving" on our grocery spending. I was tracking our spending in an upward direction - every time we spent money, I'd add it on to the total and *hope* that at the end of the month the total was less than our budgetted amount.

With the idea of a spending book, you enter in your budgetted amount at the beginning of each pay period (we get paid monthly so it's nice and simple) and then each time you spend you SUBTRACT the total from that amount. What this means is that at a very quick glance you can see how much is LEFT in the budget to be allowed to spend. Then when the next pay period comes around, you ADD it to whatever you have left. It's similar in a lot of ways to the idea of putting cash into envelopes or bags but I found that method didn't work well for me as I may buy products across various budgetted categories in the one store. This way I can come home and sort out which parts of the receipt go into each particular category.

This particular system has worked well for me for a number of reasons. With my location to shops, some months I spend way more than other months. It means that in categories like clothing I can accumulate the budgetted amounts for several months and then do a big shop up. It also allows for things like school fees to sit in the *red* (where I overspend the allowed amount I write the figure in red) for most of the year as they're paid at the start of the year and the budget for them is divided up monthly. I find this doesn't matter as amounts like Christmas gifts are accumulating earlier in the year and not used until later - so the 2 offset each other.

To give you a bit of an idea, it looks something like this (I use an exercise book for mine):

At the top of each page I write the name of the category and the budgetted amount per month.

For example: Groceries: Fruit & Veg $180 per month

The page is then divided up into 3 lots of 3 columns (so a total of 9 columns).

I have 3 columns per entry which are DATE DETAILS AMT LEFT

Here are some of my actual entries. My budget for a year begins on the 1st February as that is when the farm budget begins and it ended up being easier to assess any changes to be made at the same time as DH is assessing his. You can start them whenever - I know many people use financial years for theirs.

1/2 Deposit $180.00
1/2 F/L $20.59 $159.41
6/2 F/L $4.99 $154.42
12/2 F/L $23.18 $131.24

(I'm having some trouble with formatting so I'm trying to use colours to represent each column - I hope you can make some sort of sense of what I'm trying to explain. If not, feel free to ask questions).

F/L is my shorthand for Foodland. For most of my groceries I include some kind of code for where it was bought in case I need to find the receipt at a later date. For categories like medical, gifts and clothing, I will record the item rather than the store as this gives me more information down the track should I need it. It's great if I'm buying gifts throughout the year and need to know roughly how much I've already spent per person for example.

This is the 3rd year I've been tracking our spending and the amount of freedom from stress it has brought has been incredible. Just knowing where we are in the budget at any particular time has been wonderful. Our spending awareness has increased dramatically and our overall spending has decreased.

Joe Dominguez recommends taking an extra step with these figures. He suggests working out a "real hourly wage" and then relating all of your spending to how many hours you've had to work in order to have that money to spend. This is where it all kind of ties together.

To work out your real hourly wage you take your total pay for a set period of time and subtract things like tax, travel expenses and any other work related expenses (extra clothing, food, childcare and any other costs you wouldn't have if you weren't working). You then divide this by the number of hours it takes you to do that job. Not just the number of hours worked but also lunch breaks and travel times, any additional work brought home etc etc etc.

As an example (these are made up figures by the way):

You earn $1000 per week

Tax $250
Travel costs $100
Clothing $10
After School Care $100

Your "amount in your pocket" earnt is $540

Now your week might be a 38 hour week but it takes you 1 hour each day to get to work, you have 1 hour a day in unpaid lunch breaks, spend 1/2 hour most nights thinking about work related issues and on average spend another 2 hours per week over and above the 38 hours you're paid finishing off or in conversations with the boss on your way out the door. That's a total of 52.5 hours you're spending each week in order to complete your 38 hour a week job.

So your real hourly wage is the amount of dollars that end up in your pocket divided by the actual number of hours it takes you to have your job.

Or $540 divided by 52.5 If my calculations are correct your real hourly wage would be $10.28 an hour.

Now you apply this real hourly wage to your spending decisions. Let's round it down to $10 to make it easier. If you want to go out for a meal that costs you $100 - then it's costing you 10 hours of your "life energy"(converting $ to life energy) to do that. What you then need to decide is whether or not it is worth it to you to go out for that meal or not. Some people would say yes, others would decide they'd rather throw together a quick pasta meal for $10 and effectively be able to have the other 9 hours of working time to themselves.

This exercise isn't designed to make you stress out about every dollar you spend. Quite the opposite in fact. It's designed to help you make decisions and spend your money on things that are really important to you. That way - you're getting the most value for each dollar you spend.

I guess in a way at this point we've come a full circle from that first step where we decided that we'd try and *save* $5000 from our budget rather than earn an extra $5000. This was what worked for us (and with my paltry $2 an hour real hourly wage it was an easy decision).

I was so excited by the "ah ha" moments that we were having that I decided to do an internet search on Joe Dominguez in the hope of learning more about him and his ideas. That search led me to the Simple Living Network run by a group of people committed to sharing ideas to do with Simple Living. At this point I'd not heard of "Simple Living" so my huge learning curve wasn't even close to being over. :-)

Next Instalment: what I learnt about Simple Living


Anonymous said...

That makes heaps of sense! I have always budgeted daily (now on a money program but once in a book)but when I sometimes look at it, its hard to assess where we really are without doing fancy reports etc!By deducting your expenses your way you can see at a quick glance what you have left to spend if you need to. Do you keep a running total or start a new section each "pay period" or budgeting period?ie fortnightly, monthly etc ?
CAnt wait for your next installment! Ah ha! LS

Anonymous said...

Back again.. have you read the book "Affluenza : when too much is never enough" by Clive Hamilton. This is an interesting and challenging read!

lightening said...

I keep my totals going for the entire 12 month period. So if I get to the start of the next pay period and I still have $15.65 in my fruit and veg category then I would add $180 onto that and my new total would become $195.65 (which is a great incentive to come under budget - I know that I can come back and spend that money at a later time if I *need* to).

If I have finished the month in a negative figure than I actually have to subtract that amount from the next months figure. I don't juggle budget amounts through the year too much but accept negative figures if necessary - that way I know I need to adjust the budget the following year. I can get away with doing that now as we've built up a bit of a surplus/emergency fund which helps cover shortfall if necessary. Not that I've ever finished the year with an overall shortfall yet.

At the beginning of a new "budget" year (used to be Jan 1st but this year I've changed it to Feb 1st) I start with a fresh slate and a fresh book. Then I try to make the first month a "no spend challenge" month so that I can get a bit of a surplus happening in most categories.

As for the book Affluenza - no I haven't read it. I have read a couple of articles online by Clive Hamilton but haven't read his book. Sounds like I should add it to my "to read" list. Always hard here - I can get interlibrary loans but feel funny asking for them too often. :-)

Anonymous said...

Hey thats what librarians are there for - to help you! Keep them in their job by asking for help!
Thanks for your help! LS

Lisa said...

L, I'm interested in your frugal aussies site....can't find it though. Can you help with directions. Is it Aussies Living Simply? Lisa