How I learned the ropes

nm1213

When I first came to this board, I didn't have any debts, was earning a good wage, but wasn't keeping track of any of my expenditures. Fortunately, I was earning enough so that it did not matter, but really, was I getting any value? I work damn hard, so why not make sure I don't spend on useless things? Here is a brief guide to what helped me, in the hopes that some of you may find this useful.

STEP 1 - Categories - Where is it all going?!

I had no tracking system at all for expenses, other than my online bank statements. I took some time going through my on-line statements to come up with categories that I was spending on. For me, these included:

Mobile Phone 1
Mobile Phone 2
Electricity
Gym
Home Insurance
Internet (including land line)
Natural Gas
Rent
Council Taxes
TV License
Water
Clothing
Food - Dining Out
Food - Groceries
Household (cleaners, appliances, etc)
Leisure (movies, tickets of any kind)
Misc
Taxi Fares
Train Ticket (season)
Misc train fares

STEP 2 - How much did you say?

I then calculated what I should be spending, vs, what I was spending, and found some absolutely insane variations. For example, I was spending over £600/mth on supermarket food for a single person! I was also spending roughly £250/mth on phones, another£150/mth on dining out. This had to stop, and was quite shocking.

STEP 3 - Initial Normal limits

Based on what I read on the debt free boards (I would go through every single SOA and subsequent suggestion of improvement), I established average norms which I should be spending. I then inflated these by 30% and set an initial budget.


STEP 4 - Tracking System

I am awful when it comes to keeping reciepts and using a computer to track everything. However, I am fortunate enough to have a Windows Mobile phone/PDA, and I found a finance application (PM me if you want to know which one, as I don't want to come across as advertising it) that let me enter all my finances, budgets, accounts, and spends... and also to chart my progress, give me a breakdown on what exactly I was spending on, and so on.

I would enter all expenses and deposits as they happened on my phone, and sync them up with my computer when at home or at work. This way, no need to save all my receipts for later data entry... the last thing I want to do is walk around with various receipts and then conme home and enter them in. So why not track things as they happen?!

STEP 5 - Financial Weight Loss Program

I religiously tracked all my expenses and tried to keep within my initial budget, and found it was not so bad at all. There were new categories that I had to come up with for items that did not fit anywhere else. Most importantly, as the months passed, I was gathering valuable data and could examine trends on my spending. Based on these trends (which can be searched), I can set further goals. For example, in the last 9 months I've spent roughly £400 at Nandos! This has to stop! £12/visit does not seem like much, but when I search for Nandos from all the data I've gathered, it sure adds up and puts things in perspective! Nothing like hard numbers to give you a kick on your backside.

Each month, I would aim to reduce my overall budget by £100 or so, cutting in non-essential areas such as by reducing my phone contracts to suit my needs better, or by buying a seasonal train ticket rather than a daily, and so on.

STEP 6 - A Perfect Balance

I've been squeezing my budget slowly since April of this year when I started, and I'm now saving over £600/mth more than when I started 6 months ago! I don't feel miserable, or trapped, and still do everything I would normally do. I don't feel suffocated because the changes have happened gradually and smartly. Best of all, an extra £600/mth and I didn't even have to do any overtime or ask for a raise!

My next goal is to perfectly balance my budget so that at the end of the month, I come as close to zero as possible. Right now I find myself consistently coming roughly 150-200 below my set budget each month. Of course, this does not include any savings, and this under budgetness is just gravy to what I am already saving.

SUMMARY:

Tracking data is important when setting a budget, and if you can categorize your spending into different compartments, it will help with the on-going analysis process. Use the proper tools to enable you to track your spending so that there are no excuses from your end. Finally, this should be a gradual process, and not something that can happen overnight. Start slowly, and back your actions up with hard figures (from your gathered data), because this will make it easier to digest and understand. For example, I got robbed recently, and they took my ipod. I want to buy a new one, but it is £199 that I would rather spend on a £116 water bill (6 months) that just came up, or save it for my tuition next year... mba's don't come cheap! The only time I would use an ipod would be at the gym, and I can just buy a set of earphones and use my phone instead for music! Reasoning becomes a lot easier when you have cold hard numbers staring you in the face.

Hope this helps somebody!

N.

ani*fan

Wow...how super organised are you? Are you sure it's as easy as you're making it sound?

nm1213

Ani,

It was really easy, and I am not organized at all. That is why I changed to the phone system of entering everything as it occurs... as soon as I step away from the cash register, I put it into my phone. The software makes it easy to categorize everything, and then sets the budgets, graphs, and trends up automatically. You can then adjust them to apply in your situation.

Each morning, while waiting for the train, I check all the finances, make sure I am under budget, and decide where I have to cut back because of too much spending. I can also use the graphs/charts/numbers right on the phone to make other decisions.

It is either do the above, or read the metro... and I'd much rather read bbc online when I get to work.

N.

chevalier

that is an excellent post and I really hope it helps people to understand the process. You have put it really well!
chev

rog2

Yes - well done, nm1213. It's a shame that not all of us, especially me, are as well organised as you - but I'm working towards it.

nm1213

Noooo... I am not organized, and that is the point! I am absolutely hopeless at keeping paper records for any length of time. I have a drawer full of reciepts that I never touched, etc... I just found a workaround to my lack of organization.

N.

Fortheloveofmoney

Excellent post! It's great to know that the advise given by the DFW's translate for those not in debt too.

I sat down with my fiance last night to work out a joint SOA as he doesn't have one and mine is just for me. He was really shocked at how much he spends each month on things that he thought were "only a few pounds".

It really helps to go through things and put them in perspective to see if you're really getting value for money even if you're not in debt.

Anastacia

Excellent. We should 'sticky' this
The disorganised person guide to sorting out where the money goes.
I am going to try it (although mine all goes on a massive mortgage so not actually awfully hard to track)

nm1213

What motivates me now is that at the end of each month, I get another notch in my bar graph that shows a nice positive slope for my net worth. This alone gives me far more enjoyment than a new gadget ever could!

N.

carrliadiere

nm1213 wrote: »

What motivates me now is that at the end of each month, I get another notch in my bar graph that shows a nice positive slope for my net worth. This alone gives me far more enjoyment than a new gadget ever could!

N.

Ah, the promised land!

I am currently happy to see my debts going down, but I can imagine that when you come out the other end of that and see your actual current balance going up, it must be quite pleasing! That's kind of what motivates me to be debt free.