By contributing writer Sara Tetreault of Go Gingham Stylishly Frugal Living.
Most of us want to spend less, but where to begin? For our family, the essential first step was tracking what we spend. If we didn’t know how much we were spending, after all, how could we make improvements?
My husband and I first began tracking our spending 23 years ago, when we were first married. We kept track of penney we spent and then used Quicken to give us the big picture.
It was a lot of work to keep track of cash — and that’s where we had a problem — getting money out of the ATM too often. We changed things up and began using a credit card as our method of tracking how our money was being spent. Now we’ve got it down to a system that almost runs on auto-pilot.
Here is what we do to get control of our spending and make sure our money is helping us reach our goals and dreams.
1. We Simplified Our Accounts
One thing we found really helpful was consolidating our accounts into just one checking account and one credit card. Having multiple accounts (his, hers, ours) multiplied our banking fees, so we decided to pool our resources (pun intended) and keep only one checking account.
We also applied this same attitude to our credit card. Why have separate accounts with additional fees when we could use one account between the two of us? The trick is always paying the balance off every month, but that is another post!
The easier it is to get to your spending information (whether it be bank statements, credit card statements, or your check register), the easier it is to track and the more likely you are to follow through with the system.
2. We Gathered Bank Statements and Credit Card Bills
If you want to get an idea of your average monthly spending right now, you’ll need to unearth about six months of past statements. If you just want to start with today and go forward, you can do what we do now: simply take your latest bank statement or check register, and match it up with the dates of your last credit card statement (if you use credit cards).
Use your credit card statement to provide the details behind the lump sum check amount from when you paid your credit card bill. If you transfer any money to a savings or retirement account (YAY, good for you!), note this amount.
We rarely use cash because it has proven too hard to track — and too easy to spend! While we do keep some “walking around cash” on hand, I prefer to use my credit card because I know there’s a paper trail. I’ve even started my kid’s allowances with our bank account online. I simply write out deposit slips for them.
3. We Began Dropping Expenses into 5 Big Buckets
With bank statements, credit card statements, and check register on hand, we sit down and put our spending into categories. We used to do this monthly, but now that we’ve used our system for so long, we complete our spending chart just a few times a year.
We also have a meeting to review how our spending has gone and areas that need to be trimmed back. (It’s nice to have a cocktail during this meeting to ease the pain!)
Because I like to keep things simple, I have limited our spending categories to five:
F – Food
A – Apparel – clothing and home decor
I – Insurance
T – Transportation
H – Housing (and utilities)
You can have more if you want, but I have found that by dividing expenses into a few but meaningful categories, I can more easily get a handle on our spending.
If you do not pay off your credit card each month, make sure you categorize all the expenses on each credit card statement, NOT just the amount you paid that month, otherwise you will not capture the balance that is building up on your credit card account.
You could also track your spending the way Amy does, by writing down everything as it is spent on a printable chart in the kitchen. A pencil and paper method is good for someone who frequently uses cash or who tends to procrastinate end-of-the-month reckonings. Either way is fine — just pick the one that suits you better, because sticking with a system is more important than anything.
Both Amy and I strongly agree that this process must be done manually first — websites, apps, and other automated systems come later. Don’t confuse speedier with better. By using budgeting software or websites, you may make the process “quicker,” but you will lose the deeper understanding that comes when you — not a machine — records the expenses.
I’ve found that getting my hands dirty in the beginning is essential to really seeing our spending close up, without the anesthetizing impact of some application getting in between.
4. We Don’t Fuss Over Line-By-Line Receipt Categorizing
Here is a strategy that has really helped us stick with the system without getting all twisted up in the details: we put items in categories based on how we buy them.
For example, I don’t worry if I bought toilet paper and cleaning supplies at the grocery store. I just add up all grocery store and warehouse store receipts and enter this amount into the “food” category. The expenses have to go somewhere, after all, so I just lump all my spending at stores like Safeway, Target, Costco, and Trader Joe’s into “Food,” and done.
By putting things in categories based on stores, I make the process much quicker and more likely that I will stick with it.
5. We Use the “Other” Category Carefully
Lumping everything that doesn’t fit in the FAITH categories can make “Other,” or anything that did not fit easily into one of the FAITH categories, huge.
Try to make your defined spending categories as clear and inclusive as possible because they they will mostly reflect the “Needs” in life while the “Other” category will largely contain more discretionary type spending.
We have found that we manage the “Needs” categories more tactically (for example –- price shopping at stores or getting quotes to lower insurance premiums), whereas the types of things that fall into “Other” (sports fees, lessons, travel, hobbies) lend themselves toward more inward-looking family or couple decisions on what we value or want to prioritize.
In the next post in this series, I’ll talk more about the exciting questions that come into play when we started managing this “other” category: Where do we want our money to go? How do we want to live? Because we all get to chose how we live and in what areas we want to live richly.
Sara Tetreault writes about living the good life on less with thoughtful spending, smart use of resources, and efficient use of time. By cooking at home, growing vegetables, sewing, and home swapping, she hopes to inspire you with her frugal, fancy, and fun ways. Sara keeps a home, one husband, two children, and three backyard chickens. She loves gingham fabric, which is the name of her blog, Go Gingham Stylishly Frugal Living. You can follow her on Twitter, became a Fan on Facebook, or see her pins on Pinterest.