Reader Experiment: How Well Do You Know Your Own Spending?

Even though I’m really into personal finance, I hardly ever do a monthly budget. However, I do think a common problem out there is that folks spend more than they think they do. Often this is just in one “problem area” such as groceries, dining out, clothes shopping, or online purchases. Therefore, I propose an experiment where everyone tracks their budgets for just one month. (If you already track your spending religiously, skip this post.) It’s October 31st, so how about November?

I’m doing this myself for November, and I hope you’ll join me. The experiment is quite simple. Here is the overall picture, followed by details.

  1. Before the start of the month, write down what you think you will spend that month.
  2. During the month, track your spending.
  3. At the end of the month, compare your prediction and actual spending results. What was different? Why?

Start of the Month

Without checking any other sources, just use your gut and write down how much you think you’ll spend for the month. Break it down into categories like housing, food, debt, transportation, utilities, and so on. If you’d like to participate in a group project, I’ve created this simple Google Docs form that you can fill out your predictions, and I can report on overall numbers later one. Unfortunately, the form won’t e-mail you a copy of your inputs, but you can record your prediction by printing out this PDF version or use this text file and save it on your computer.

During the Month

If you do the majority of your spending via online billpay, debit cards, and credit cards, then the easiest way to track your spending is with a online money management site like Mint.com (owned by Intuit) or one of the many flavors of Yodlee out there (Fidelity FullView, Bank of America MyPortfolio, etc). You just enter your login information, and it pulls all your transactions for you. Categorization gets better the more you use it.

Alternatively, you can keep track using pencil and paper, enter expenses into a smartphone app, or use desktop software like Intuit Quicken or iBank for Mac. You could also just wait until the end of the month and tally up your statements, but then this task might become a bit daunting. It’s probably best to keep up with it at least weekly. I plan on using Mint because it’s already learned most of my categories, and it also has a mobile app that lets you enter cash transactions.

End of the Month

The moment of truth arrives. In what areas did you overspend? I’m hoping to get at least 100 readers to fill out this predicted spending survey and then follow-up with an actual spending survey to see how it went. I’ve already entered my numbers and don’t worry, it’s all anonymous. How well do you really know your own spending?

Comments

  1. That’s a really interesting idea. I filled it out, and I hope I’m paying attention to follow up at the end of the month. It’s interesting, I was working on my October spending yesterday to get a little ahead, and I was manually categorizing all of my purchases. I didn’t pay the slightest bit of attention to the totals, though, because there were still a couple of days left in the month and I didn’t want to mess up any of my formulas if I had to add a few more transactions. I also use a different sheet for each of my bank and credit accounts and then a final sheet to add them all together and graph them, and I didn’t even open that last sheet yesterday. I’m really curious to see how I did.

  2. Is November the best month to be doing this experiment for the first time? After all, with the holidays, I think many people will be spending on irregular items that they normally wouldn’t.

  3. Thanksgiving is definitely going to make these numbers a little different from most months with travel and addition grocery spend.

  4. Jonathan,

    Take a look at http://www.billguard.com/.
    This is an exciting new startup (google them, they won few high profile competitions) that aims to be ‘an anti virus’ for your credit card use.

    Not necessarily related to spending control (yet) but very related to fraudulent activity.

  5. Christmas shopping might skew the numbers too.

    I track my spending for a month every year or so to get an idea of where my money goes then I try to cut.

  6. If we do all of our spending on credit cards / reward debit cards and bill pay with the occasional rare cash transaction (which you might be able to check online if you went to an atm, wrote a check, etc.) then you could retrodict your spending too. I am going to retrodict back to a month that was typical (this month I have my annual home insurance premium, property taxes, black friday shopping, thanksgiving travel, 6 month car insurance payment, several birthdays to buy for so November my spending always goes up a lot and I’m not sure i want to back out all those expenses from my calculations – but maybe I will).

  7. This is a good idea but I’ve been keeping track of all of my spending for years so I can’t participate.

  8. I never use my gut because I already know not to trust it. For example, each year I actually calculate the average of my utilities over the past year instead of just knowing it’s somewhere between $60 and $280 each month.

    My numbers for next month will probably look quite low because I won’t need much heat or A/C, no property taxes are due, insurance isn’t due, my vacation isn’t until February, and I just got a car last year, so I won’t be needing one of those. Still, I need to save for those things because so long as I have a lifestyle where I own a house, travel, and use a car, I really am going to be spending that money and need to budget for it. So any gut feeling about how much I’m actually going to spend this month is of little value to me.

    Then there are the things you know will happen, but you don’t know when: car repairs, appliance replacement, doctor bills, funerals, once-in-a-lifetime opportunities. I do suspect that there will be sale prices on baking ingredients, so I’ll probably stock up on those a bit.

    So that’s why I’m not filling out your form.
    Housing – 0
    Food – 140
    Transportation – 20
    Debt – 0
    Utilities – 100
    Personal – 200
    Total – $897 (includes 85 dentist, 30 doctor visit, 272 charity, and 50 surprise)

    Of course I couldn’t really live on that (or anyway, I don’t); my monthly budget, not counting retirement savings, is $2032.

  9. This is a really good idea, I need to do it. I think this might be a bad month to do it though, holiday spending has already begun! But it will be nice to know how much typical things cost, and how much I SHOULD be spending on things like presents and other misc expenses

  10. Holiday spending and Thanksgiving could be a problem, but that’s just a little extra difficulty :) You can either make a separate category for those things, and make a guess for that as well, or just include it in your “Total” which is meant to include all the “other stuff” for the month.

    30 people have signed up so far! Share your predictions too.

  11. I was just thinking about doing this because I need a better handle on what our true expenses are. I use mint, but I find that it also includes my monthly investments as purchases. This would be ok, but there are normally 10-30 transactions in Mint (many at $0), for only a small handful of actual transactions.

    Anyone have a good iphone app rec for expense tracking combined with desktop (either Mac or PC) software that’s relatively inexpensive?

  12. We did this recently. The one category we were both off substantially on was clothing. We both significantly underestimated that. That is being rectified going forward!

  13. I really like to use “Money Engine”, however there is no desktop app that goes with it. It is very simple and you manually enter your transactions. It makes graphs and the whole nine yards. I was fortunate enough to grab it when it was free a while back. Now it is $2.99.

    http://itunes.apple.com/us/app/money-engine/id404024380?mt=8

    I think someone on here mentioned “Money Well” a couple weeks ago.

    http://nothirst.com/moneywell/iphone/

  14. Alexandria says:

    I think this is a GREAT idea.

    I personally track all of my spending in Quicken. When we were DINKS, I did not use any tracking/budget for the most part, because we banked 50% of our income (lived off one paycheck, banked the other). HOWEVER, after years of using Quicken, and trying to manage much more finite resources, I Am converted for life. If you find an application that makes it easy to track, you will find you are far more efficient and mindful when you know where every penny goes. (Though I agree I wouldn’t want to spend a lot of time tracking every penny! That is where financial apps or software comes in). I am not much into detail-oriented budgeting. I just like to see what we spent where, after the fact, to make sure we are on track. That’s about the extent of it. “Gee, we spent a lot on dining out last month – we really need to keep that in check.” Stuff like that. I come across types like me in my former life who don’t see the point, but I think everyone can benefit and be more efficient with their financial resources.

  15. Alexandria says:

    P.S. Re: THanksgiving and Christmas – kind of how it goes every month with any type of expense tracking or budget. Every month will be unique. This is why it is also think in terms of a more annual budget. I think I tend to make more annual spending/savings goals, and then track monthly just to make sure I am not getting too far off track.

  16. 54 participants so far! Hmm… I guess a 7 question survey is much more trouble than a poll.

  17. @Alexandria – We’re DINKS, and we do exactly like you. We just deposit the smaller paycheck into our primary bank account and live off that.

    Quicken sounds good, but their support for Mac is quite poor.

  18. “Alternatively, you can keep track using pencil and paper, enter expenses into a smartphone app”
    Can anyone recommend a good smartphone app (Android) for expense tracking?
    Actually, i think November is a great time to do this project because it might encourage participants to be more mindful of a holiday budget. I’ll just create a separate category for Thanksgiving’s Day meal and holiday gifts.

  19. Another mobile application to consider is Pageonce (http://www.pageonce.com/).
    These guys have been around for several years (5M users). Most of the functions are free and additional features are always added.

  20. I put all of my variable expenses, like, groceries, eating out, gas, etc on a credit card that I pay off every month. It was hard to believe how much I spend on that stuff, at least 4 times what I thought I spent whenever I go to pay the bill. Now that I’ve done it for so long, I have an expected average that I try to maintain.

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