Simple Pound

This post appeared as a guest post at Wellheeled.

We all know that having a budget and controlling your spending is a good thing. In theory. That’s great, but there are so many things we know are good for us, yet we still don’t manage to put them into practice. Think exercise… After I grew up with my mum telling me I should really track all my expenses, I have tried so many things, but none of them worked for longer than a couple of weeks when the novelty wore off.

When I realised that I was going to start earning a salary soon (i.e. regular income) and would have bills to pay (i.e. regular outgoings) as well as many dreams to fulfill (car, property…), it became clear that there was no way around coming to grips with my money. And that’s what I did. I have been sticking with the same process for the last 7 months, and I hope this is gonna be it. So what am I doing?

First of all, I didn’t set myself a budget but simply started tracking my expenses. If you haven’t paid attention to what you spend your money on, chances are you have no idea what life actually costs. Setting yourself a budget in a situation like this is likely to have a disastrous outcome because most probably your budget won’t work, you’ll get annoyed or disappointed and abandon it.

Thus, step 1: get a receipt. Bagel on the way to work? Coffee in your lunch break? Simply ask for a receipt. You’ll be surprised how readily you’ll be able to get one. For transactions you can’t get a receipt for, make a mental note or write it down – either in a little notebook, or on another receipt. All we want is to keep track.

When you get home in the evening, allow 2 minutes for your finances and enter your day’s expenses into a spreadsheet (or anything similar like Microsoft Money, Quicken etc.). But make sure you enter them in a way that will allow you to easily compare figures over months. With all my failed budgeting attempts I compiled my expenses on a day-by-day basis, i.e. I would know that I spend $ 4 on coffee on Thursday, the 2nd of March. The result was that I never looked at these figures ever again. But that’s really not the point of tracking your expenses – the reason you do this is to figure out where your money is going. And if you will have to sit down an spend hours compiling figures at the end of the month, you’re simply not going to do it.

I have arranged my spreadsheet into months and categories, as shown below. This way I’m calculating the monthly running total straight away and can see immediately how I’m doing compared to the previous month.

The first line lists the month’s overall expenses, with the line underneath telling you how much money you should have left assuming the figures in the „Income“ category are correct. Further down, my expenses are broken down by categories (e.g. „Home“) and subcategories (e.g. „Mortgage“). My spreadsheet is actually based on a template that I downloaded from the Microsoft Office site. This way I didn’t have to worry about the spreadsheet details (for instance, all the sums it computes) while still being able to customise it enough to reflect my own personal lifestyle.

Roughly once a week I consolidate the spreadsheet with my online bank statement to include any regular expenses that are deducted by Direct Debit and to make sure that any card transactions are reflected accurately (both in the spreadsheet and on the bank statement).

As of today, I still don’t have an actual budget but I’m constantly trying to undercut expenses or increase my savings rate (which I have included in the spreadsheet as well) as compared to the previous month – therefore moving closer to a figure that accurately reflects my spending per category and that I could potentially use to draw up a budget.

The main reason I haven’t done this so far is that I knew my financial situation in 2007 would change dramatically and hence any budget that worked in March would be obsolete by July. And a budget I would set myself while being in New York (on a business trip for two months) wouldn’t be appropriate for the last quarter of the year when I’m back in London. But I’m nevertheless one step ahead for next year’s New Year resolutions!

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