This is the eighth part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “Financial Tools: Net Worth Planner/Tracker“.
The next (final) article is “Finance: A Little Perspective (and some snow)“.
One of the things I’ve realised over the last couple of months is that I’ve often spent money without really taking note of where it’s going. This was most apparent when I was trying to estimate my weekly expenditure for my Net Worth Planner. I knew pretty much what I spend, but I had no detailed idea of what on.
The only way to find out was to start detailing my spending down to the last cent, in a way which allows me to review it, and trim any unnecessary outlays. You could do this with a spreadsheet, but that quickly became cumbersome, so I turned to dedicated software for the task.
There are quite a few options out there – the venerable market leaders are Quicken and Microsoft Money (with the former garnering better reviews, on the whole). Since I’m almost wholly mac-based these days, I also tried out a couple of cheaper mac-specific options, Cha-Ching and iBank.
Cha-Ching was the first out of the gate since I picked it up insanely cheaply during their initial introductory offer. It’s a beautiful-looking app, and has some good features (adding “tags” to expenses is a good way to slice them, for example), but it was lacking in the area of tracking cash expenditures, didn’t have enough in the way of simplifications for recurring vendors/payments, and didn’t provide great overviews of expenditure over time. It was very nearly there, but not quite…
iBank, on the other hand, does exactly what I need it to. Managing account transfers is a breeze, the categorisation of expenses turns out to be just as useful (and in some ways simpler) than Cha-Ching’s tags, and the killer feature is the charting of expenses over time. Looking at this, I can see, for example, exactly how my food costs break down, by creating a pie-chart of the last month’s spending for all the relevant categories. In this way, it’s easy to see just how much I’m spending on eating lunch or breakfast out during the work-week, and motivate myself to bring food from home (or eat breakfast there) more often.
This isn’t a recommendation per se – different apps work for different people, but I prefer iBank.
For the first few weeks, I just tallied everything I spent, even cash expenditures (which go against a dedicated “Wallet” account entry). This in itself was a powerful motivator – it’s a lot harder to forget/forgive frivolous expenditure when you have to tally it all somewhere.
The real benefit, though, came a few weeks in as spending patterns started to emerge, recurring (but variable) bills turned up and I began to get a full overview of where my money was going.
The insight has allowed me to re-evaluate all sorts of spending, and has led to some direct changes:
- I changed my DSL and home phone service plans, cutting their monthly cost in half.
- I’ve started cooking batches of food and freezing the majority, taking them to work and saving $5-$10 on lunch each time.
- I was motivated to cancel the gym membership that just doesn’t fit into my lifestyle at present.
- I’ve switched banks, eliminating a bunch of annoying and unnecessary fees (and incidentally earning a much higher rate on my core savings).
- I’ve cancelled a wine club which, while nice, has left a stockpile of bottles which will take me 3-6 months to drink, minimum.
None of these things, in themselves, saves that much money per month, but it’s enough to notice, and over a year it will save me well over $1000. Not bad for 10 minutes each day updating my finance app…
The next step, now that I have over a month’s worth of data, is to build a reasonable budget for myself (which the app can do specifically), and see if I can pare it down further without living the lifestyle of an ascetic monk. We’ll see how that goes…
Disclaimer: I’m not a financial advisor, and I’m just sharing my own financial plans because, well, I like to share. It’s also a good exercise in “thinking out loud”. You choose to follow any advice in these posts at your own risk, though – I’m not responsible if you overdraw or suffer other financial calamity…
The iBank screenshot on this post is from IGG Software’s website.