“Where did it come from where did it go…” No, I am not attempting to create a semi-plagiarized hit single to be played ad nauseum at sporting venues…this refrain is the mantra just waiting to be stuck in your head as you ask ourselves what happened to that paycheck you worked so hard to bring home? 1Although I think we can all agree that a catchy tune behind these lyrics complete with a music video featuring accountants busily making journal entries couldn’t help but be a chart topper. Whether you generally live within your means or cross your fingers and just hope the check doesn’t bounce, unless you have some feel for where your money is going today you will be hard pressed to make any changes.
The categories
Exactly how to group your spending varies depending on who you are talking to. For this site I have grouped as follows:
- Housing – a place to live and the cost to maintain it
- Utilities – the cost of heating, cooling, sanitation, and telecommunications
- Transportation – the cost to get from here to there (vehicle, maintenance, fuel, or public transportation)
- Insurance – the cost of protecting yourself from what might happen
- Household expenses – food, clothing, etc
- Discretionary costs – entertainment, eating out, gifts, vacation, etc.
Where did it come from?
This one is usually pretty straightforward. If you work for an employer simply take a look at your pay statement and add up what you received. Be sure to note whether this was a “normal” month (did you get any extra income from overtime, etc?). When planning, I typically look at the “net” or “take-home” pay (which excludes any deductions for taxes, retirement, and often some insurance). Your “take-home” income is the money available in your account to cover your expenses.
If you are self-employed or have an irregular source on income this can be a bit more complex. For our purposes here, include your best estimate of a normal month of income.
Where did it go?
This part can be a little trickier. If you are like most of us, your money is spent in a variety of ways (credit cards, debit cards, Apple Pay, Venmo, checking, and even cash). It can get a little bit challenging to ensure you’ve captured all of it, so here are a few ways to take an initial pass at figuring out where it all went.
- The “guesstimate.” While not ideal to really know where your money went, many people we’ve talked to have started by just estimating how much they spend in category. At best this gives a rough idea of spending, but it can be helpful to give a first pass idea of where your money is going and whether you are spending more or less than you make. Overall, a good quick starting point but not a good place to stop! 2 Blinding flash of the obvious: Turns out most of us spend more than we estimate.
- “Balancing the checkbook” – Your grandma’s approach may be “so 20th century,” but it can work just as well today. For most of us, regardless of how we spend it, our money eventually goes into or out of our bank account. By looking at where we started and what the “ins” and “outs” were for, we too can figure out where it went. The challenges? A large credit card payment 3 or Venmo, PayPal, or even Dogecoin isn’t particularly helpful in telling us what our money was really spent on. Plus that credit card payment was really for stuff you bought last month so the information is a bit dated to start with. Despite these shortcomings, this is a viable way to measure where your money went while knowing you’ve accounted for everything that went through your checking account.
- Keep receipts. Another way to track where your money went is to keep your receipts for a month or two and go through them at month end. This gives you a “real time” measure of what your money was spent on (unlike waiting for the credit card statement a month later). If you do this, be sure to save them all and don’t forget to add any online purchases or direct payments from your bank account.
- Use online budgeting tools. Do the above options seem like a little too much work, or are you concerned that 3 hours later you’ll add something wrong and reach a wrong conclusion? The good news is there are a number of budgeting tools that can help you track your money by linking to all your various accounts. One example (that has been a mainstay for years) is mint.com. Unfortunately, it was recently announced that mint.com will be shutting down. Another well known solution is YNAB.com (short for You Need A Budget). There is a cost associated with this one, but it can provide an alternative to “home grown” budgeting solutions.
Ready to follow the money? Regardless of the approach you choose, the attached document can give you a place to tabulate where you stand.