In our last article, we explained the importance of tracking one’s spending but we didn’t actually give you a plan…So here’s the first step of the plan.
It’s not quite time to start changing your spending habits or invest in offshore derivatives; for now, all you have to do is record your expenses.
We encourage you to track your spending over a period of a month. This should capture all your debit orders that likely only come off once in a calendar month. It’s possible to track for a fortnight, and then extrapolate that data by duplicating it, but you might double up on certain debit orders, miss some expenses altogether or record thirty days’ worth of expenses that might not be a true reflection of one month’s worth of expenses.
For example, you may do most of your grocery shopping in the first two weeks of the month, which when doubled would give inaccurate information on just how much you spend on groceries over thirty days.
Thirty days also represents the duration of most people’s financial cycle. From salary to salary, and one full run of debit orders. If you have a different type of financial cycle, feel free to track spending for as long as you need to get reliable results. We can’t force you to do anything. We’re just writers and none of us know Kung Fu.
If you’re an avid internet banker and you use your debit and credit cards for most of your purchases, print out an extract of your account statement. It’s the best option as it’ll incorporate all debit orders and things like bank fees that you often don’t see coming off of your account.
What it won’t capture are all your purchases paid for with cash. To manage this, keep all your store receipts in that back section of your wallet or purse, and then tally them up at the end of every week.
Then you record the expenses on a piece of paper. Or an Excel spreadsheet, if you’re really keen.
You could also commit to not paying for anything with cash for the month in question. Then your bank statement reflects all your spending.
A simple piece of paper kept in your wallet might be the best way to note down those smaller cash purchases from time to time. Your phone’s note-taking app is also fine.
If you use your card for the majority of purchases and like this author, you have a considerable amount of debit orders being deducted every month, we’d suggest you start using 22seven.
22seven is a free online tool that collects data directly from your bank and categorises all your expenses for you. It is very good at figuring out what expenses are related to what category of expenses and will give you a useful dashboard view of your spending for the period.
Where it is uncertain about a specific expense, you can manually allocate it to a category and it remembers it for next time. It learns too!
It may take you a little while to find your way around 22seven, but once you’re up and running you’ll find it to be a very powerful tool. The great thing is that once you sign up, it can instantly allocate all prior spending to categories, meaning it can immediately retro-consider your spending.
22seven does a lot of other stuff, their service is entirely free and it’s accessible via an iPhone or Android app if you prefer.
We spoke to the team at 22seven about their product while writing this article and figured that since we had their attention we should ask them about their experience with South Africans’ personal finances to date and what they could share. Our conversation with 22seven will be posted by Jon shortly.
WellSpent doesn’t get any financial benefit from recommending 22seven, just in case you’re wondering. We really just think their web app is great.
Remember that this is not only about knowing how much you spend in a given period; you need to also know where it’s going. Every record of an expense should note the amount and what it was for.
Record everything from tipping a petrol pump attendant to a litre of milk. In order to better make sense of the recorded information later on, you might want to consider recording expenses under certain headings now, eg: groceries, eating out and convenience food, petrol, tips, entertainment, etc.
There is no right or wrong way to do this, and it’s really just writing stuff down as you do it. Don’t stress out about getting it right. This isn’t something you’ll be doing for so long that you need to perfect the method. Right now it’s about knowing how much and what. Don’t assume that you’ll remember what an expense was for, by the way. You probably can’t do it. You probably can’t remember how many cups of coffee or tea you’ve had today.
If you need ideas for categories of spending, why not see what 22seven use or Google up some personal budget templates. Or add categories as you go.
If you find yourself shocked at how much you spend on eating out, don’t try and argue away your behaviour: record it for what it is. There’ll be plenty of time later on for making changes. Now is the time for full information, un-edited and raw in its honesty.
So commit to a method, pick a start date and start tracking your spending. You won’t be able to change if you cannot first recognise and acknowledge your current behaviour.
22seven raised some very interesting and relevant points, particularly regarding behavioural finance which is something that WellSpent will be dealing with a lot in the months to come. We’ll help you understand how little you know about yourself and how to protect you from yourself.
Your challenge is to track your spending for a month. If you need motivation, stand in front of a mirror and shout the following at yourself:
DO IT. Track your spending! Get one of those tiny pens! Go to 22seven right now. COME ON. REGISTER. LOG IN. DO IT. GET TO THE CHOPPA.