For those with sometimes OCD organizing tendencies, you may be interested in knowing how I track and organize the flow of my money.
My expenses breakdown is a modified version of one I read in a book a very long time ago. Unfortunately, I don’t remember what book it was, but I remember modifying it very heavily — it was more an ‘inspiration’ — so I don’t feel terrible not giving proper cudos to the author!
I tried to make a breakdown that would require very little modification over time. For example, I have an ‘insurance’ category, even though when I came up with these (early University) I was paying nothing for insurance, but foresaw the need.
The Expense categories are:
- Giving — donations, contributions, gifts
- Self — savings, investments, debt-reduction
- Taxes — federal, provincial, Employment Insurance
- Shelter — mortgage, rent, essential repairs and maintenance
- Home — groceries, phone, utilities, clothing, cosmetics, essential products
- Transportation — vehicle maintenance, gas money, bike parts, carpool money
- Fun — eating out, alcohol, events, non-essential ‘stuff’ (e.g. iPhone)
- Insurance — home, possessions, auto, life
- Miscellaneous — unknown, lending, bank fees
- Work and Education — schooling, business expenses, courses, seminars
- Other — bank transfers, withdrawals, and deposits
The list is not in any particular order of priority, though it is somewhat grouped. The first three concern giving to others, yourself, and the government, and are IMO the most important. Four through six broadly concern your ‘stuff’, seven concerns fun times, eight concerns protecting your stuff, nine concerns whatever else isn’t covered, and ten concerns your knowledge and education, career and work.
The sub-categories mentioned are more or less what I use. For example, I have 5. Home specifically broken down into Communication (i.e. cell phone, land-line, and internet), Groceries, Stuff (further broken down into Books, Clothing, Electronics, and Meds&Health), and Utilities (i.e. gas, electricity, water).
If I ever don’t know what sub-category to put something into, I just use the main category. For example, if I buy a spatula for the kitchen, it is a ‘Stuff’ item, but doesn’t fit into a specific sub-sub-items under Home:Stuff; therefore, I put it under Home:Stuff. Likewise, a chair would simply go under 5. Home, because there isn’t a more detailed sub-category for furniture.
11. Other is used for keeping track of transfers between accounts and for withdrawals/deposits. In these instances I am moving my money, but it always remains mine, so it’s not really an expense.
The Income categories are:
- Bank Interest
- Gifts
- Government — e.g. tax return
- Hourly-based Work — any work where you are paid hourly or by salary
- Project-based Work — any work where you are paid by the project/piece/output
The first is usually negligible, since I make hardly anything from bank interest. Gifts is straightforward, as is Government. I distinguish between Hourly- and Project-based work because eventually I want to move towards increasing the percentage of Project-based income I generate.
What to do with these categories?
Track.
To know, understand or change your spending you need to know what your spending and where you spend it. The above categories allow me to see both a big-picture breakdown of my expenses using the main categories, as well as a detailed breakdown via the sub- and sub-sub-categories.
Budget.
I use the Your Money of Your Life approach for deciding how much to budget for each category. By calculating how much you actually get paid per hour — by factoring in commute time, lunch expenses, gas, work-specific clothing, etc. — you can get a better sense of how many hours of your life you’re willing to work for what you pay for. If you spend $20 per day eating out, that may equate to two hours of your life spend every day making money to pay for that habit!
The money you spend should align with your values. For example, how much you spend on 1. Giving? Budgeting lets you set the ideal picture of your money-life, and tracking lets you hold yourself accountable to your budget.
Spend.
Spend according to your budget, and track what you spend. There’s nothing ground-breaking here, it’s all very common sense!
Some potential difficulties
Choosing the right category. — I sometimes have a hard time putting my expenses in the right category, because it’s not always obvious when a purchase is a Groceries (5. Home) or an Eating Out (7. Fun) expense. I just do what seems to make most sense at the time. A bagel at a cafe is definitely Eating Out, a bagel bought there for my sandwich tomorrow is Groceries.
Any others you can think of?
How you can use these lists
If you have never really thought about a budget, or have one but find that you are constantly changing or revising it, feel free to try out mine.
The sub-categories are flexible. Change them as needed, buy try keep changes to a minimum, so that your budget (at least the main categories) can stay constant throughout the months and years — I’ve been using this basic framework for almost 3 years now! I’ve never needed to modify the main categories, but have tweaked the sub-categories a few times.
Be more broad if you don’t like getting so specific. Even eliminate the sub-categories if necessary. Do whatever works for you.
Any other suggestions? Leave a comment.
###
