My Expenses – Adding it all up – May 2009

Here comes the moment of truth – my personal balance sheet for the month of May. I’ve kept pretty good track of my expenditures this month, and to back me up I have Mint.com and Wells Fargo – they do a pretty good job of categorizing as well.

After completing this exercise, I intend to define my personal savings plan and finish setting up my ING savings/sub-savings accounts as planned. If there is one thing that this month has taught me, it’s that one absolutely needs a “stupid mistakes” fund.

So – I somehow managed to spend ALMOST $9,000 in May. OMG. I can hardly believe it. My income was $8,480 – which includes expenses payouts from previous months as well. Ok, when I look at it that way, I guess it’s not TOO bad especially when you consider that $1,353 of my expenditures were expenses I’ll get back, I paid about the same to my credit cards (just a coincidence this time, I promise), I saved a small amount and I donated a small amount to charity. Regardless, I need to find ways to increase my income as well as cutting back on spending.

Going through this process was EXTREMELY valuable for me and I’m going to make it a habit every month. It’s very clear to me that I need to cut down on eating out and non-essential shopping immediately. I feel like I have already slowed way down on this – and my Mint.com account shows the same – but I need to do a better job. I still have a lot of credit card debt to pay off.

Next step – define my savings plan and get all of my accounts set up correctly.

What I learned today: The importance of an emergency fund

Today I learned a valuable lesson – having a fund for emergencies/unexpected expenses is extremely important.

Long story short, I got a flat tire in a parking garage about 60 miles away from home – in the early evening when hardly anyone was around and tire-repair shops were closing. You might say – change the tire yourself – but of course I was without 1) skills, 2) tools and 3) any idea whatsoever where, if anywhere, my spare tire is in my car. Underneath? No idea. Perhaps this sounds like I need to get some car repair skills, and that may very well be the case – but regardless, I was stuck in a bad situation.

Luckily I had ample friends and family willing to help, just far away. And also luckily, I have free roadside assistance from my car insurance provider, Farmers. After waiting for way too long and barely making it to the tire repair shop in time, I was stuck with a $95 bill for a new tire and service (old tire was completely ripped to shreds).

This time, I had more than enough funds in my checking account to cover this totally unexpected expense. However, I’d like to get more proactive about saving for unexpected expenses. I really like Ramit Sethi’s use of sub-savings accounts for these types of expenses: http://www.iwillteachyoutoberich.com/blog/tip-using-sub-savings-accounts-for-unexpected-expenses/

He suggests saving a certain amount per month specifically earmarked for unexpected costs, and then sweeping the unused amount into general savings at year’s end. I’m not sure about the second part – I would probably always want to keep somewhat of a hedge against these types of situations. Just like the general emergency fund that everyone should save – 3-6 months worth of living expenses – once you have saved this amount, it’s probably good to move on and start investing your funds elsewhere, such as your retirement or paying off debt.

I recently opened and ING savings account to start saving the way I want to save – specifically with sub-savings accounts for different goals. I’ll write a review of the account usability as soon as I’m able to use it for awhile.

In the meantime – thinking about how much I can devote to unexpected expenses!

How to keep track of your expenditures: Part 1

There are a few key steps to keeping track of expenditures:

1. Have a daily system for tracking/reporting expenditures – ALL expenditures

2. Have a monthly, bi-weekly or weekly system for entering your expenditures into Excel. Yes, you can use personal finance software as well, but I like the hand-entering system because it forces me to be extra-conscientious of the money I’m spending.

I choose to carry around a small notebook in which I record my expenditures by day – this goes with me everywhere. I’ve gotten really good at remembering what I spend, but I highly recommend entering line-items each evening so that nothing is left out by accident. Dorky? Yes. Effective? Absolutely. It causes me physical pain when I have to record a large purchase in the notebook.

When you make entries, I recommend you indicate the exact amount you spent along with a simple categorization of the expense – in line with your Excel.

For the next post on this subject, I’ll talk about how to enter this data into your monthly spreadsheet.