Financial Management and Analysis

A year ago, our little family was having a hard time in several aspects of life (isn't it annoying that difficult things often come in multiples?!). One of difficult things was our financial situation. The year 2008 was a big one for us: we moved to a new state and bought a business--both very expensive things. We were mostly doing fine and didn't pay too close attention to where our money was going. We are both pretty frugal people, so nothing outrageous was going on...just careless spending. I was getting too nervous to see how bad it was getting, so I got into the mindset that if I just didn't look at bank statements or bills, they would all magically be fine. Well, I discovered that is not a healthy way to deal with things, and something had to change.

My New Year's resolution for 2009 was to keep track of every penny that came in and out of our financial life. Another was to continue being a deal-seeker and coupon cutter (a hobby I had started in 2008). I'm happy to say that for the first time in my life I have actually been successful at keeping my New Year's resolution the whole year long; in fact, I think I'll continue doing it into next year and the year after that and hopefully forever!

Here is what I do: I have an Excel spreadsheet where I record every single thing we buy or bills we pay. I list the date, who the money went to, the cost, a description of what it was, which bank account it came out of, and what category of spending it came out of (I'm sure I could use some accounting software to make it easier...I do have Quickbooks that I do the bookkeeping with for the business. I have meant to try using it for our personal finances with, but haven't gotten around to setting it all up yet). At the end of the month, I look at how much total we have spent.

In another spreadsheet, I keep track of every penny we earn: I put the date we receive each paycheck (or extra random money we get), where it's from, how much it is, where it's deposited, and if I've paid tithing on it yet. I then add up how much we earned that month and compare it to how much we spent that month from the other spreadsheet. And like any good financial advisor would tell you, the goal is to spend less than you earn.

When Chris and I were engaged, we tried making a budget for ourselves for when we would be married, but I had a really hard time doing that because I had absolutely no idea how much money we would need for groceries, gas, or other necessities--I had never paid any attention to that before. If you start tracking your expenses, you have a better ability to predict how much money to allot for different things. And you realize where you're weakness are. A little burger here, and a little pizza there don't seem like much at the time, but when you add it all up, it can become a really big amount.

Tracking income and expenses alone would be sufficient enough to begin making a budget. But me, being a nerd who likes numbers, went way beyond this minimum have have analyzed our financial situation in great detail.

I have another spreadsheet that compares each category for each month. For example, I have a chart that compares how much we spent on groceries for each month of the year, and then the total amount we spent on groceries for the entire year and so on with gas, eating out, cell phone--basically any variable expense (though I also include our fixed expenses just so I can see how much for an entire year rent has cost us). Along the bottom of this chart, I put down our monthly income which does fluctuate somewhat, and then I can look a percentages (our rent compared to our take-home pay average is about 28%--a teensy bit above what Dave Ramsey suggests, though I've heard other financial advisers say it should be no higher than 30%, so I think we're doing ok).

I made cute little graphs that give a good visual of our spending habits, and a file listing the dates and amounts of our regular bills, and if they come out of our bank account automatically or if I have to remember to pay those myself. And to help me remember to pay certain bills on time or to transfer money between our accounts, I have a month calendar with each bill and amount to be paid. I keep both electronic files of all of this as well as hard copies (in a cute little folder from one of my most favorite stores--Office Depot!).

I was showing Chris some of these charts and files the other day, and I was getting all excited and giddy inside because I enjoy doing it so much, and I have so much more peace knowing where our money is going. It's like Dave Ramsey says, you have to live like no one else in order to live like no one else. We're working on that and are in a much healthier situation than we were a year ago.