Expense tracking: end of year review

For 4 years on this blog, I have been praising the benefits of tracking expenses (get the free spreadsheet here).

I have gone into detail on how best to account for purchases properly, including topics such as:

Tracking expenses while traveling

How many categories should you have?

Why the richest American suggested tracking expenses

But I realize these are all about accounting, which is really just one side of the equation. The other side is the analysis and understanding the results.

This year I diligently logged 500 expenses, and it would be a shame if I didn’t analyze the data to get an overall picture.

An end of year review is extremely important to understand how you spent your money and how you can improve. Here are 5 tips on doing an end of year review:

1. Check you entered all purchases

Before you get to analyze the results, do one more check that you entered all of your purchases.

The end of the year coincides with a lot of spending, so be sure to input all the gifts, travel, and unusual holiday expenses.

This is also a good time to make sure you included automatic or monthly expenses that you might have missed, such as:

–utility bills
–subscriptions to magazines/video services
–insurance bills (car/health/life)
–large cash purchases

It is not a big deal if you forget a $10 fast food meal. It is if you forget a $1,000 dentist bill.

Focus on large purchases and be sure to get them into the expense tracker. You need good data for the spending summary to be accurate. Otherwise, it is garbage in, garbage out.

2. Compare actual spending to budgeted goals

Now you get to grade yourself on how you spent your money this year.

In Step 5 of the simple expense tracker, there is a spending summary that compares actual spending to monthly budgeted amounts.

I have made up some data to illustrate what this looks like:

See how you did by comparing the “year-to-date monthly average” column to the “monthly budget” column. If the monthly average is higher than the monthly budget, then you overspent. If the monthly average is lower, then you were within the budget.

This person did a good job by saving nearly 25 percent of their income. However, the person did slightly exceed monthly budgets for utilities, and insurance. Though overall, this person did an incredibly good job at budgeting and saving.

3. Figure out where you spent too much

Once you get an idea of where you spent money, you want to look further into the results.

Look closely at each category that you did not meet your budgeted goal. What caused the overspending? See if there are any large purchases you made in the spending transactions.

Often I find that I overspent because a one-time purchase like an emergency car repair means I blew my budget. Rather than blaming bad luck, the honest thing to do is to admit the budget was unrealistic and save more for the upcoming year.

4. How much did you save?

The expense tracker also keeps a tally of savings, which is how much is leftover from income after expenses. This is found in Step 4 and looks like this:

The data show this person saved a decent chunk of money: over $18,000. Of that, $7,200 was planned savings of a $600 monthly saving. The total savings rate was 24 percent which is quite admirable.

Note that if you spend more money than you earn, the total savings will be a negative number. This is a sign you could be spending too much or earning too little. Or it might be the result of having an unexpectedly long unemployment period. It may be necessary to dip into savings for such emergencies, but ultimately this is not a sustainable position.

Examine your savings situation and see how you might be able to improve.

5. Write goals for next year

The final synthesis of expense tracking is to improve yourself going forward.

Even if you messed up this year, you have a chance to do better next year and redeem yourself.

If you spent too much at restaurants, then make it a goal to cook at home more. Or if you paid for a gym membership you never used, be honest if you will ever use it and should cancel it.

The spending data should help you figure out ways to better spend your money. It’s up to you to turn the data into goals and put them into action.