January 5 2015 - spend it like you earn it
I have long been intrigued by folks who live pay cheque to pay cheque. I’m not talking about the people just scraping by, working 2 jobs to cover the rent. I’m talking about people who earn a very healthy income and yet can’t get to the end of the month before getting to the end of the money. I happen to have friends like this and I find that doing things with them (like eating dinner out) can be stressful as you aren’t quite sure if they will cover their part of the tab. How do they do it? Where does it all go? But more importantly, why do they do it? Is the idea of a budget foreign or just too restrictive to their lifestyle?
Since I joined the workforce full time in 1998 I have been very fortunate to have more money than I needed to get by. And maybe because of that, I have not been disciplined about making a budget and everything seemed to tick along OK. I always had money for bigger things when I needed it. Maybe I was lucky and made good decisions. Maybe I was lucky and didn’t have disastrous events befall me. Maybe I was lucky to make the money I did at a job I enjoyed. But luck isn’t going to get you everything. Just ask those lottery winners who are broke 3 years later.
Having 2 young kids, a mortgage (on a very old house that we did a major renovation on recently), a small amount of debt and likely a car payment in our future can quickly make it apparent that money can disappear quickly after payday. Also, being on mat leave (or even just preparing to be) was stressful when I’m not even quite sure how much we need to get by.
I love to watch “Til Debt Do Us Part” and the more guilty pleasure sibling TV show “Princess” both hosted by Gail Vaz-Oxlade. Over the years I’ve picked up some tips and tricks but haven’t actually done a full blown application to my life - OK to my family’s life. But in the last year or so I decided that it was time.
I bought the national bestseller by Vaz-Oxlade “Debt Free Forever” and started at chapter 1. While I’ll spare you the blow by blow on this book I do want to share some key things that I’ve discovered and that may prompt you to do your own analysis that this book very helpfully (and simply) walks you through.
Part 1: Personal Assessment
The first step in Gail’s approach is to figure out where you stand. If you’ve ever watched the above mentioned shows, you know that people are always worse off than they think. Often by many thousands of dollars (re. debt) or many hundreds - or thousands! - of dollars (re. spending habits). To know where you stand you need to do some work.
While all the details are covered in the book, you basically need to take a number of months of credit card and bank statements and determine where your money goes. Gail’s recommendation is 6 months. I did 1 year to cover the full spectrum of things like birthday and christmas gifts (I’m a giver, so my spending is significant to our overall budget and should be properly assessed).
Gail has 5 broad buckets (housing, transportation, life, debt, savings) but when you are reviewing your spending, you need to consider much smaller sub-buckets. The more specific the breakdown the better. The list of categories may seem long but it helps in the end. Example: you could lump your daily coffee runs in with groceries but that won’t help you pin point that as an area for improvement, if needed. Here are some further details of the categories you can use:
Housing
Transportation
Life
Debt
Savings
If you have specific things you’d like to track (e.g. shopping at a particular store or website) add it in. There are no wrong categories.
The long and short of it is this: all money coming out of your bank account or being bought on credit need to be put into a bucket. Additional situations that can complicate things:
To do your own analysis, you may want to buy the book for all the details but I will try and walk you through the process here. Consider this an interactive book review :). Soooo, let’s build a spreadsheet! Don’t get scared, you can do this.
Step 1: Decide on time frame (6 months, 1 year, etc.)
Step 2: Download bank account / line of credit / credit card transactions from your provider’s website. If you have more than one account / line of credit / credit card, be sure to do this for each one and for the same time period you selected above. And if you have a partner that you share all this financial fun with, you’ll need to get transactions from all their accounts too.
Step 3: Create a list for each account / line of credit / card. Each list will have all transactions for the time period selected, for the given account. You will need date, description of transaction, amount (and if it’s an “in” or “out”). These should be the things on the list you download, but wanted to mention it just in case.
Step 4: Start categorizing! Put every entry into a bucket. There will be items you don’t know how to categorize (see cash discussion above)... for now, put that in an “unknown” bucket.
Make sure you categorize all transactions, including the deposits. Our focus here is on your spending, not your earning, but we’ll need those income amounts later so might as well track them now.
When I did this, I started with a list of categories (similar to what’s listed above) and as I went through my transactions I found I needed to (or wanted to) create additional buckets. That’s not a problem! Just make sure you don’t have so many categories that they’re meaningless or that you can’t remember them all and end up putting similar transactions into different buckets.
One thing that is great about doing this in a spreadsheet (vs. on paper, manually, as some may prefer because the word “spreadsheet” produces hives on contact) is that you can group and sort your transaction list and assign buckets to similar transactions in bunches, vs. one at a time. But I love spreadsheets, so suit yourself. :)
Step 5: Match up cross payments, and remove transactions where needed. This is where you might start to get confused, but hopefully I can explain it here. Let’s consider a few examples.
Example 1: you pay a credit card bill from your bank account. There will be a payment OUT on the bank transaction list and a payment IN on the credit card transaction list. You only want to track the payment once and we want to track the payment being MADE, not RECEIVED. That means you want to put the amount coming out of the bank account in the “credit card payment” bucket and delete the transaction (row) from the credit card transaction list. The reason we do this is because this exercise is tracking your spending, not your credit balance (that comes later!).
A second example: you transfer money from your personal account into a joint account you share with your partner. Again, there will be an “OUT” from your account and an “IN” to the joint account. In this case, you don’t want to track either of these transactions because nothing actually got paid for, you’re just moving money around to facilitate ... whatever you use multiple accounts for. So once you match up these transfers, delete the transactions (rows) from both bank account transaction lists. The same thing is true if you pull money out of a line of credit or credit card (into a bank account). You don’t want to count the “out” transaction (from line of credit) or the “in” transaction (to the bank account)... you’re still just moving money around.
I’ve created a template spreadsheet for you work through steps 1 through 5 here.
So off you go, you’ve got homework. And I’ll tell you up front, this won’t be easy. Especially if you spend money via cash vs. plastic. This will take time but it is vital to making a budget that will work for you. Guidelines are all well and good but if they are based on a situation that doesn’t apply to your life, the budget will be useless and you will be no further ahead than you are now.
I’ll give you a week or so to pull all this data together then you can come back and I’ll walk you though Part 2 (Reviewing Your Spending Habits).
Since I joined the workforce full time in 1998 I have been very fortunate to have more money than I needed to get by. And maybe because of that, I have not been disciplined about making a budget and everything seemed to tick along OK. I always had money for bigger things when I needed it. Maybe I was lucky and made good decisions. Maybe I was lucky and didn’t have disastrous events befall me. Maybe I was lucky to make the money I did at a job I enjoyed. But luck isn’t going to get you everything. Just ask those lottery winners who are broke 3 years later.
Having 2 young kids, a mortgage (on a very old house that we did a major renovation on recently), a small amount of debt and likely a car payment in our future can quickly make it apparent that money can disappear quickly after payday. Also, being on mat leave (or even just preparing to be) was stressful when I’m not even quite sure how much we need to get by.
I love to watch “Til Debt Do Us Part” and the more guilty pleasure sibling TV show “Princess” both hosted by Gail Vaz-Oxlade. Over the years I’ve picked up some tips and tricks but haven’t actually done a full blown application to my life - OK to my family’s life. But in the last year or so I decided that it was time.
I bought the national bestseller by Vaz-Oxlade “Debt Free Forever” and started at chapter 1. While I’ll spare you the blow by blow on this book I do want to share some key things that I’ve discovered and that may prompt you to do your own analysis that this book very helpfully (and simply) walks you through.
Part 1: Personal Assessment
The first step in Gail’s approach is to figure out where you stand. If you’ve ever watched the above mentioned shows, you know that people are always worse off than they think. Often by many thousands of dollars (re. debt) or many hundreds - or thousands! - of dollars (re. spending habits). To know where you stand you need to do some work.
While all the details are covered in the book, you basically need to take a number of months of credit card and bank statements and determine where your money goes. Gail’s recommendation is 6 months. I did 1 year to cover the full spectrum of things like birthday and christmas gifts (I’m a giver, so my spending is significant to our overall budget and should be properly assessed).
Gail has 5 broad buckets (housing, transportation, life, debt, savings) but when you are reviewing your spending, you need to consider much smaller sub-buckets. The more specific the breakdown the better. The list of categories may seem long but it helps in the end. Example: you could lump your daily coffee runs in with groceries but that won’t help you pin point that as an area for improvement, if needed. Here are some further details of the categories you can use:
Housing
- sub-categories: mortgage, property tax, electricity, gas, water heater, water, garbage service, house maintenance (repairs, renos), house insurance
Transportation
- sub-categories: car payment, car insurance, licensing fees, gas, repairs, public transportation, Taxi, parking, toll road fees
Life
- sub-categories: cable, internet, telephone, cell phone, child care, life and health insurance, allowances (for kids), medical/dental expenses, groceries, personal care, clothes, pet expenses, vacations, charity gifts, family/friends gifts (birthday and christmas), entertainment, eating out, interests/hobbies, sports, clubs/unions, bank fees
Debt
- sub-categories: payments to line of credit, credit cards, family loans, student loans, personal taxes not paid at time of earning
Savings
- sub-categories: Emergency fund, RESP, RRSP
If you have specific things you’d like to track (e.g. shopping at a particular store or website) add it in. There are no wrong categories.
The long and short of it is this: all money coming out of your bank account or being bought on credit need to be put into a bucket. Additional situations that can complicate things:
- Money you earn that doesn’t go through the bank account - e.g. tips, cash jobs. You need to track this income and where it got spent (more on that below). This is near impossible unless you are conscious of it and record it somewhere.
- Paying cash. Using cash to pay for things, even if the money starts out in your bank account, makes accurate spending tracking hard. If you take out large amounts of cash and spend it over a period of time (vs. on one particular item) you will forget where it all went. That’s not to say you have to start using plastic to make this work - that’s actually the opposite of the method Gail uses - but you do need to keep a record of what you spent it on. Keep receipts or take notes on your phone / in a little notebook and make sure it adds up when the cash runs out.
To do your own analysis, you may want to buy the book for all the details but I will try and walk you through the process here. Consider this an interactive book review :). Soooo, let’s build a spreadsheet! Don’t get scared, you can do this.
Step 1: Decide on time frame (6 months, 1 year, etc.)
Step 2: Download bank account / line of credit / credit card transactions from your provider’s website. If you have more than one account / line of credit / credit card, be sure to do this for each one and for the same time period you selected above. And if you have a partner that you share all this financial fun with, you’ll need to get transactions from all their accounts too.
Step 3: Create a list for each account / line of credit / card. Each list will have all transactions for the time period selected, for the given account. You will need date, description of transaction, amount (and if it’s an “in” or “out”). These should be the things on the list you download, but wanted to mention it just in case.
Step 4: Start categorizing! Put every entry into a bucket. There will be items you don’t know how to categorize (see cash discussion above)... for now, put that in an “unknown” bucket.
Make sure you categorize all transactions, including the deposits. Our focus here is on your spending, not your earning, but we’ll need those income amounts later so might as well track them now.
When I did this, I started with a list of categories (similar to what’s listed above) and as I went through my transactions I found I needed to (or wanted to) create additional buckets. That’s not a problem! Just make sure you don’t have so many categories that they’re meaningless or that you can’t remember them all and end up putting similar transactions into different buckets.
One thing that is great about doing this in a spreadsheet (vs. on paper, manually, as some may prefer because the word “spreadsheet” produces hives on contact) is that you can group and sort your transaction list and assign buckets to similar transactions in bunches, vs. one at a time. But I love spreadsheets, so suit yourself. :)
Step 5: Match up cross payments, and remove transactions where needed. This is where you might start to get confused, but hopefully I can explain it here. Let’s consider a few examples.
Example 1: you pay a credit card bill from your bank account. There will be a payment OUT on the bank transaction list and a payment IN on the credit card transaction list. You only want to track the payment once and we want to track the payment being MADE, not RECEIVED. That means you want to put the amount coming out of the bank account in the “credit card payment” bucket and delete the transaction (row) from the credit card transaction list. The reason we do this is because this exercise is tracking your spending, not your credit balance (that comes later!).
A second example: you transfer money from your personal account into a joint account you share with your partner. Again, there will be an “OUT” from your account and an “IN” to the joint account. In this case, you don’t want to track either of these transactions because nothing actually got paid for, you’re just moving money around to facilitate ... whatever you use multiple accounts for. So once you match up these transfers, delete the transactions (rows) from both bank account transaction lists. The same thing is true if you pull money out of a line of credit or credit card (into a bank account). You don’t want to count the “out” transaction (from line of credit) or the “in” transaction (to the bank account)... you’re still just moving money around.
I’ve created a template spreadsheet for you work through steps 1 through 5 here.
So off you go, you’ve got homework. And I’ll tell you up front, this won’t be easy. Especially if you spend money via cash vs. plastic. This will take time but it is vital to making a budget that will work for you. Guidelines are all well and good but if they are based on a situation that doesn’t apply to your life, the budget will be useless and you will be no further ahead than you are now.
I’ll give you a week or so to pull all this data together then you can come back and I’ll walk you though Part 2 (Reviewing Your Spending Habits).
MARCH 8 2013 - GOOD OLD FASHIONED CLICK AND SAVE
I have always been fascinated by coupons but never good at using them. On a good day I remember to bring them to the store with me, only to find them in my wallet when I return home. And then they expire.
Have you ever seen those shows on TLC (or other high quality programming channel like Slice?) where those people spend 15 hours a week planning their shopping trip, go in and fill 10 carts worth of groceries, have the (very patient) cashier ring it all up (including coupons) and their bill comes to $5.13 or something ridiculous like that? Crazy people stocking up for the apocalypse, I guess. Well I'm not here to tell you about that. :)
What I did want to tell you about is a new app I've been using for about a month now. It's called Checkout 51. It is couponing for the 21st century and it's Canadian! Here's how it works:
- each week there are 10 or so products offering deals which show up in the app
- you go buy them, at any store (well, the one's you'd use / eat)
- you scan / take pictures of your receipt, using the app
- you select which deals you're claiming
- you submit your receipt
- within 48 hours (usually less than 4 for me), your receipt gets processed and you get money in your (app) account
- once you get to $20 in your account you can request a cheque
IT'S THAT SIMPLE.
As I said, I've been using the app for about 4 weeks now and I've saved $11. Not $400 like on TV, but something is better than nothing, right? I don't know if the app is in beta mode but perhaps over time there will be more deals per week (vs. only 10 or so)? The only down side I see to the app is that you only get to claim the deal once in the week. So if you would buy 3 loaves of bread and the Checkout 51 deal is $1.50 off, you only get the discount on one loaf, not all 3. But I guess old fashioned coupons (in Canada anyway) work that way too.
Oh, one last disclaimer: the app doesn't work in Quebec, not sure why, but you know, they are a bit different. Vive la difference!
Have you ever seen those shows on TLC (or other high quality programming channel like Slice?) where those people spend 15 hours a week planning their shopping trip, go in and fill 10 carts worth of groceries, have the (very patient) cashier ring it all up (including coupons) and their bill comes to $5.13 or something ridiculous like that? Crazy people stocking up for the apocalypse, I guess. Well I'm not here to tell you about that. :)
What I did want to tell you about is a new app I've been using for about a month now. It's called Checkout 51. It is couponing for the 21st century and it's Canadian! Here's how it works:
- each week there are 10 or so products offering deals which show up in the app
- you go buy them, at any store (well, the one's you'd use / eat)
- you scan / take pictures of your receipt, using the app
- you select which deals you're claiming
- you submit your receipt
- within 48 hours (usually less than 4 for me), your receipt gets processed and you get money in your (app) account
- once you get to $20 in your account you can request a cheque
IT'S THAT SIMPLE.
As I said, I've been using the app for about 4 weeks now and I've saved $11. Not $400 like on TV, but something is better than nothing, right? I don't know if the app is in beta mode but perhaps over time there will be more deals per week (vs. only 10 or so)? The only down side I see to the app is that you only get to claim the deal once in the week. So if you would buy 3 loaves of bread and the Checkout 51 deal is $1.50 off, you only get the discount on one loaf, not all 3. But I guess old fashioned coupons (in Canada anyway) work that way too.
Oh, one last disclaimer: the app doesn't work in Quebec, not sure why, but you know, they are a bit different. Vive la difference!