It stands to reason that if we want to be better at managing our money, we need to know where our money is actually going. That sounds obvious but like so many other things in personal finance what sounds obvious often isn’t. Lots of people arrive to the end of the month and find that their pockets, wallets, and bank accounts empty (or sub-empty) without having a clue about where the money went. They need to complete a spending summary, also known as a spending journal or expense analysis.
What is a spending summary?
In a spending summary you track, categorize, and summarize every nickel that you spend over a period of at least three months, preferably more. Every nickel. It doesn’t matter if you use cash, credit cards, debit cards, cheques, or an automatic payment. Every time you part with your money and it becomes someone else’s money you need to be aware of it and document it. Every freakin’ time.
After the couple of months is up, you gather up your notations and then sort them into spending categories. Car payments, gas, groceries, restaurants, lottery tickets, clothes, heating bills, booze, collectibles, snacks, personal items, magazines… it goes on, and on, and on. An expense analysis is among the most retentive of tasks and is just as much fun as it sounds like it will be. Honestly, with our busy lives, who among us would willingly subject themselves to that sort of rigmarole? You should.
Few exercises in personal money management are as eye-opening or as impactful as completing a detailed spending journal. Virtually everyone who completes one discovers something about their spending habits that they were previously unaware of. More significantly, not only do they gain an improved awareness of where their money is going, they are also far more likely to act on that knowledge. This could be by reducing or eliminating whatever wasteful spending habits they have uncovered.
Talk about bang for your buck.
A spending summary costs you nothing except for the time and effort it will take.
Once the analysis is done, you can start looking at what you overspend on and then determine where you need to cut back. While everyone is different (that’s why it’s called personal finance) one category that usually stands out is restaurant spending. People often shocked to discover how much of their money is being deposited at restaurants just to be deposited in a different manner about three hours later. And it’s SOOO easy to cut back on restaurant spending. Go out for lunch instead of dinner. Use coupons. Stay at home and eat. Order an appetizer instead of a meal. Pack a healthy lunch. Skip dessert. Have a non-alcoholic drink instead of a boozy drink.
It’s nearly impossible to get a grip on your spending without knowing what you are spending your money on. And once you’ve started to track your spending you’ll find it’s not nearly as arduous as it sounds. There are lots of apps available to help (I hear good things about EveryDollar), there’s nothing wrong with a simple spreadsheet and others swear by a pencil and paper. (For some, the act of writing it down just makes it seem a little more real.)