How I’m Tracking Every Dime
Mr. Money Mustache says:
Enjoying life while spending less money is a skill that develops just like a muscle, as opposed to a permanent state of deprivation.
One of the ways I am going to reach my goal is to build up massive frugality muscles. To begin I need to cut way down on the frivolous spending that has been dominating my budget for the past 18 months. The first step to cutting frivolous spending is to identify where that extra money is going. Identify it, recognize it, and neutralize it.
Mint.com does a good job of this already but I am looking for a little more detail. I want to be able to closely see how I am spending my money as it relates to my gross income and my take home pay. So, for the past week I have been building a badass budget tool that will track everything.
I have always been amazed at the magical powers that can be performed in Microsoft’s Excel program and I am a little bit of a spreadsheet nerd. With just a little effort I created a workbook that will track all of my income and expenses and all of my assets and liabilities. The best part is that this data is fully customizable. I can easily create summary sheets with my financial information and pull all of the data into colorful charts and graphs that give me a visual representation of where I stand.
These charts and graphs will help to re-enforce my debt pay down plan. Seeing my debts go down and my net worth go up will push me to do more and keep the process going. All I have to do is to input the data once a month (and keep making the extra payments).
My income statements will track my total gross earnings and all of my monthly expenses (including my payroll deductions). All I have to do is enter my pay stub data and then all of my expenses for the rest of the month. The workbook will then take care of the rest. Here is what it looks like:
This chart is the bulk of where my expenses will be tracked. I created the categories based on where most of my money goes. Now I can track every single dollar I earn, from the taxes I pay to the check I ultimately get from employer, and on to the other expenses I have each month. This data gets summarized rather nicely in the following table:
Each month this second worksheet consolidates all of my earnings and expenses into the above categories. This gives me a quick run-down of where my money is going. What’s great is that this sheet is automatically populated, it takes no extra work from me.
The worksheet also creates a consolidated income statement for each quarter and for the year overall. With this I am able to see my earnings grow month to month and see how my expenses are faring as well. The data also easily allows me to create graphs that display my spending by category over time. These charts can also be set up to populate automatically as I fill in the data each month.
Another item I want to closely track is my outstanding balances. Each month I make payments towards my student loans and I save money in my 401(k). Now, with the extreme extra payments I began making I will track how these payments are changing my balances. It is easy to pull up my Wells Fargo account any given day and see my balances. However, by tracking it each month I will have a really good understanding of the progress I am making and it will motivate me to keep it going.
Again this is customized entirely to my situation. I will be tracking each of my loans as a separate balance. Each month all of my loans issue me a statement with all of my balances, I will use these to enter the data for each loan. It is a little painful to see my massive liability but I will also witness the change in my total net worth on a monthly basis, the good part? this number will be improving each month!
This data also pulls into a monthly consolidated table with quarterly and yearly tables as well.
One thing to remember: balance sheets are not cumulative. The data is always at one point in time whereas the income statements are cumulative over the defined time period.
The bulk of the data I am looking for is coming from the balance sheets. I have a few graphs that update automatically each month showing my outstanding loan balances relative to my goal as well as my overall net worth. The graph I showed you in my Focusing on My Goal post is built off of these worksheets.
Each month as I input my balances this graph draws the next line. It is a great visual tool to track my progress.
I have been busy entering all of my 2012 monthly balances in order to get an idea of how I performed over the past year, when I wasn’t even trying to pay down debt. The numbers were a little surprising. Here is how 2012 turned out:
You can see that my net worth really started to improve in August. This is the month when I found No More Harvard Debt. Reading that blog had a positive impact on my net worth! I paid off all of my credit cards in August and began saving. It is because of these savings that I was able to direct a big $6,500 payment towards my loans last week. I have to give a big shout out to Joe and thank him for getting my started.
As you can see there is a lot of room for improvement. I had a total of about $12,000 in loan payments in 2012 yet my outstanding balances only dropped by about $6,000. And my net worth actually dropped in May even though I have a well paying job! This is the month I bought an iPad. Yes, it is a cool gadget but it clearly did not help my financial situation.
This is why this spreadsheet is going to be so powerful. I will have a visual representation of my financial situation. My goal is to make this improve each month and I will clearly be able to see if that is happening. By knowing what is improving my finances and what is hurting my finances I will have a great start. This knowledge will be a great tool in exercising my frugality muscles.
I am wrapping up entering in all of the info for January and I will have a progress report posted soon. Things look really good for my first month! I am well on my way towards financial freedom!
When I post my progress reports I will be showing a version of my income statements that only display my expenses. My income is confidential but I will let you know that it is a tad over the U.S. median.