In these days of electronic banking and online statements, it’s easier than ever to take stock of how much you are spending each month and where your money goes. Are you one of the many people who isn’t sure how much you’re spending, you just know that at the end of the month, it’s all gone? Knowing how much you spend each month will make it easier to set goals around savings and debt repayment, and it will also make retirement planning (a very long-term goal) possible. So let’s take a few minutes to figure out how much you spend.
Almost everyone is paid using direct deposit. In that case, seeing how much you earn (after taxes and withholdings) is as easy as seeing how much money hits your bank account. At the same time, seeing how much you spend should be as simple as looking at the other column on your bank statement. How much do you withdraw in a given month? Many people use debit and credit cards to make purchases. That means there may be a large number of withdrawals from your bank account. For the moment, that doesn’t matter. Just look at the total amount withdrawn and that’s how much you spend in a month.
There are a couple of exceptions to account for, however. Debt repayment is different than spending. It is certainly a monthly (or bi-monthly) expense, but it doesn’t need to be accounted for in retirement planning. In fact, once you pay back your debts, you’ll have additional cash for monthly spending. Separate out car payments, mortgage payments, line of credit payments from the rest of your spending. Don’t ignore it, but understand that it isn’t part of your lifestyle spending (unless you spend more than you earn). Saving is another exception. If you put money each month into a savings account, a TFSA or an RRSP (or other account), that’s also not lifestyle spending. It won’t need to be replaced in retirement, and once you’ve saved for retirement, it will also be available for spending.
If you want to further categorize your spending, for your own information, review the spending from your bank statement (debit card and cash withdrawals) and credit card statement. Is there somewhere you spend more money than you’re comfortable admitting? Is there cash that you don’t know where it’s going? If so, you might consider giving yourself an allowance. As an example, I withdraw $50 cash from the bank each week. That’s how much money I feel comfortable spending on fast food, entertainment, etc. Sometimes it accumulates week to week. Other times, I run out of cash and stop spending. This way, I limit the amount that I spend without really knowing where it’s going.
One idea to make it easier to save more and spend less is to use automatic transfers to save money from yourself. Each month I have $250 transferred automatically from my chequing account to an investment account. This way, I’m not tempted to spend the money, since it’s not there, and my savings (for my kids’ education) continues to grow.
Have you spent time figuring out how much you spend? Did you find any surprises? Did you make any changes as a result?