Welcome to Part One of the Living Healthy in the Real World Guide to Budgeting mini-series!
When I wrote about my Raw Food Diet, I was surprised at the vast number of people who thoughts that spending $230 on food for one month was a lot of money. This was a very reasonable amount for me, and even a little less than I might normally spend.
This tells me that (no offense), most people don’t really realize just how much they spend, and where they are spending. That $230 figure included not only groceries from the grocery store, but also every time I would have gone out for a meal, bought a cup of tea at a cafe, and also any kind of alcohol (although, obviously, I was not drinking alcohol during my Raw Food Challenge). When I say “I spent $230 on groceries”, I’m including every single dollar that I spent on anything that was consumable.
$230 in one month is, to be honest, a shockingly low figure. I watch what I spend my money on. I shop the sales and I do not go out to eat very frequently. Even taking into account that food in the United States is cheaper than in Canada (or so I hear, anyways), I imagine that most people unknowingly spend over $250 a month on groceries per person in their families.
Understanding your expenses isn’t going to be pretty, especially if you haven’t ever tracked your expenses before, but it’s absolutely necessary. Here’s how to do it:
1. Track everything you spend. And I mean everything. If you give 25 cents to the homeless man down the street, write it down. If you lend a friend a couple dollars, write it down. If you buy a coffee at the corner store, write it down. There are five things that you want to make a note of when you’re tracking your expenses: first, write down the date. Second, write down the business that you bought the item from. Third, write down what it is that you bought. Fourth, write down how you paid for it. Fifth, write down how much it was, rounding up to the nearest 25 or 50 cents.
A few days of my notebook looks something like this:
31/01/10 Forks Market (2 yams and bananas) –> cash $2.50
02/02/10 Soma Cafe (roti) –> cash $6.00
01/02/10 Manitoba Hydro (monthly bill) –> bank withdrawal $25.00
2. Be specific. Write down not just “groceries” when you hit up Safeway, but the kind of groceries you’re buying. You don’t necessarily need to write down every single item, but at least distinguish between food and, for example, toilet paper. Instead of writing “Safeway (food)”, write down “Safeway (fruit, Kleenex, toilet paper, beans, and milk”). If you spend money on something for a specific event, such as a potluck or a dinner that you’re cooking for some friends, make a note of it. You want to know what you’re spending your money on and where it is going.
3. Never round your numbers down; always round up. If you spend $3.30 on an item, round it up to $3.50. Even if you spent $3.10 on an item, round it up to $3.25. It’s better if you assume that you’re spending slightly more than you actually are, rather than assume that you’re spending slightly less.
4. Track your income, too. Any time that people give you money- whether it be your paycheque, your roommate’s rent cheque, or a tax return- write it down on a separate piece of paper in your notebook.
5. Look at your bank account every day. I pay all of my bills online, plus my investments come directly out of my bank account each month. If I didn’t check my bank account online on a daily basis, I would have no idea that a few hundred dollars were “disappearing” each month. So, check your bank account online every day, and if there are direct deposits or direct withdrawals, record these as well.
6. Count it all up at the end of the month. On another separate piece of paper in your notebook, add up all of your expenses and all of your income. See if they somewhat level out. Chances are, you’ll be spending far more than you think and far more than is necessary, but that’s okay, we’ll find many ways for you to decrease any kinds of wasteful spending!
Now that you’ve started tracking your expenses, do not stop. Keep doing this for the rest of your life. It takes next to no time at all, just a few seconds to jot down what you’ve spent. Once we’re conscious of what we’re spending, how we spend, and what we’re spending it on, we can re-organize our finances to make life that much easier- and save a ton of money in the process.
Do you adore the convenience of online banking as much as I do? Do you track your spending? Have you done it in the past? Do you think you would be surprised at where your money goes if you began to keep a record of it?
Stay tuned for Part Two of the Guide to Budgeting mini-series, in which we’ll look at the issue of Making Sacrifices!