Spending Analysis revisted

Wow! It is hard to blog with a baby! Sure I have tons of time…but it is so hard to type with only one hand! Sorry I have been MIA for a while I am really going to try and get back into this.

So after talking about doing a spending analysis a while back…uhhh I think August….so maybe more than a while back…. I had A LOT of questions. Texts from friends, e-mails, phone calls you name it. That’s what happens when I post without editing/re-reading what I write. So lets try again.

If you want to gain control of your finances you MUST put in the work to do a spending analysis! This is not negotiable. If you skip this step you are not serious about controlling your money. End of story. If you want to know why read my previous post on the topic as I go quite in depth on it.

Instead, on this post, I will explain how to do a spending analysis in better, easier, step by step writing.

Ready? Its a lot of work! Lets do it.

STEP ONE:
Gather all of your bank & credit card statements, loan statements etc. for the last SIX months!
If you are one of those people who throws your bills in a pile somewhere and doesn’t file them or really  look at them you miswell grab all your bills too and get organized. So today is November 10, if I was doing this today I would gather all my statements from May-October. You can do this online but I find it much easier to have hard copies.

Question: Where do I get my bank statements?
Answer: I hope you are using online banking….go print them off.

Question: Why 6 months?
Answer: It is the best way to get an ACCURATE look at your spending. Things crop up “out of the blue” such as oil changes, car repairs, house repairs, road trips etc. By doing this for 6 months you are more likely to catch those one off expenses so you can plan for them

STEP TWO:
Separate the statements into piles by month (include your bills if you don’t have those organized…seriously two birds with one stone)

STEP THREE:
Grab a some sheets of paper and a pen/pencil and a calculator. 
(you may want to grab something to drink/munch on at this stage too. I’m partial to a glass of red wine and a brownie myself).

STEP FOUR:
Grab the pile for the first month and start at the top. Here is an example of my credit card statement from September.  I am using September as an example, you will want to start in May or whatever month comes first in your pile.

Capture2

(Keep in mind this statement is from a few days before going into labour…I was WAY off budget eating like crap)

So the first two things on the statement are McDonalds and Tim Hortons. I am going to write down “Fast Food/Restaurants” then write McDonalds–5.13 Tim Hortons–9.53. The next thing is HMV, this was for a gift so I will write down “Gifts” HMV–6.29. Then we see Lans Asian Grill (which if you live in Edmonton and haven’t been my gosh you need to go today! It is AMAZING food for really good prices and the owners are the nicest people you will ever meet).  So now under the line saying Tim Hortons-9.53 I will write Lans 32.30. Keep adding categories as they make sense to you. Here is what I ended up with off of this statement. I just did this in excel and here is what I ended up with

Capture7

So you can see. In 10 days in Sept I spent $144.18 on fast food and restaurants, $32.52 on gifts, etc. In Total I spent $804.98 in ten days. Like I said…I went WAY off budget not giving a care as I was preggo and miserable. This happens. You fall off the band wagon then you see your mistakes and move on. Now you will notice that I subtracted 350 from the 804 to get 454.98. Why? I use my credit card for EVERYTHING and then pay it off 2-3 times a month. I put that in there so that I can see that the 350 is really just a transfer of funds. I REALLY spent 454.98. However if you are not using your credit card for everything and paying it off (which I don’t recommend until you feel like you really have control of your money) you need to call a spade a spade. If you are carrying a balance, you spent money on debt repayment not transferring money. So you spent 801.98.

Question: How do I make categories?
Answer: Start at the top and make categories as you go. If you find something that doesn’t fit create a new category for it or slide it into an “other” category if you know it was a weird one time type purchase for you. So you can see I started with fast food, then added gifts as was necessary then added Medical etc. Keep adding categories until you have a chart that is meaningful to you. Include income as a category!! This includes job income as well as tax cheques, gst etc.

STEP FIVE
Grab another drink. You deserve it. The numbers may be shocking already.

STEP SIX
Do this for the remaining 5 months. 

Here is a small example with made up numbers

Capture15

so in this case…this person spent 100 even on fast food in may, 21.25 on fast food in june etc. in total she spent $2018.22 in May and she spent $617.63 on fast food in 6 months. Hopefully this chart is making sense to you.

STEP SEVEN
Figure out your average spending.

So random person above spent $617.63 on fast food over 6 months. So take 617.63 and divide by 6. 617.63/6=102.94. So on average this person spends 102.94 a month on fast food. Now do you see why it is important to look at a 6 month average? In June she only spent 21.25 but on AVERAGE she spends WAY more than that. If you attempt to do a spending analysis on just a month or two your numbers WILL be skewed.

STEP EIGHT
Do the same thing with your income.

So May +2500 June +2540 July +2500 etc. Now take your spending and minus your costs. So if she made 2500 in May and spent 2018.22 she spent 481.78 LESS then she made. Good for her! (2500-2018.22=481.78) Most people this number will be negative because believe it or not most people spend more money than they make a month using credit to pay the difference.

STEP NINE
Play with the numbers

See what you are overspending, Look at what categories you are spending too much. etc. Let it all sink in.

STEP TEN
Grab another drink and prepare to make a budget that works! 

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