Managing Expenses and Cash Flow – Part 1: Why

Managing Expenses and Cash Flow 01 CumWhy should you have to record every purchase you have made to keep track of your expenses? Let someone else do it for you: buy everything using plastic or mobile payments (tap and pay). You will then be provided with a summary of the payments by date, vendor and amount that you can access online. Using the Cash Flow method presented here and the spreadsheet included in Part 2, you can simplify the tracking of your expenses with a few minutes of work each month. You can also plan your income and expenses by month, prioritize your expenses, show your cash flow to ensure you have enough money when big bills are due and compare the actuals to the plan.

The process for managing your expenses can be easily stated:

  • 1) Document your planned income and expenses for a year.
  • 2) Record actual income and expenses each month.
  • 3) Compare the actuals to the plan.
  • 4) Adjust the plan to reflect what has happened.

Notice that income has been included and not just expenses. Keeping track of expenses really makes no sense if you do not know whether you can afford the expenses.

While the plan may only take a few minutes, depending on what method you use, keeping track of the actuals can be time consuming and frustrating.

The key to simplifying the collection of your actual income and expenses is to only use cash as a last resort and to rely on debit and charge cards.

When you use “plastic” and “tap-and-pay”, you will then be provided with a summary of each transaction by date, vendor and amount that you can access online. No more keeping track of your receipts, except to verify the transaction.

I have been using a method that I refer to as Cash Flow for years to compare a plan to actuals. It is similar to keeping a budget, but is less stressful, more informative and easier to keep current.

The spreadsheet provided as a free download in Part 2 is a simple way to develop your plan and record your actuals. It can be easily modified to your situation. It provides a number of tables and charts to make it clear how you are doing over a year.

This is Part 1 of a four-part post. If you want to go directly to downloading and using the spreadsheet, click on Part 2:

  • Part 1: Why – The reasons for managing your expenses and why it is difficult to do so are given. Click here for a preview of the spreadsheet.
  • Part 2: Spreadsheet – An explanation of how to use the Cash Flow spreadsheet is provided. You may download it by clicking on Download Spreadsheet.
  • Part 3: FinanceBase – Only so much can be done with a spreadsheet. A more robust and full-featured application as an alternative to the spreadsheet is discussed.
  • Part 4: Design – A summary of the design of some of the features of the spreadsheet and the posts is presented.

You Manage Your Money Whether You Like to or Not

You are already managing your expenses and cash flow if you have an income and spend your money. You also make daily decisions as to what has highest priority by what you spend your money on. Are the daily decisions you make affecting your financial health? Are they causing you to go into debt or are you able to save? For many people, it is living paycheck-to-paycheck while for others there is money that can be saved.

Many people feel that they have no control over their spending for a variety of reasons while other consider that they have spending under control. No matter what your situation, if you want to better manage, prioritize and track your expenses there is a relatively easy way to do it as explained in this post.

Rather than use links in the body of the post, see Resources at the end of the post. All references are given in brackets. Just click on one to go to the Resources section and click on the Return to get back to where you were.

How Well Do You Manage Your Money?

A Gallup poll (1)(2) indicates that only one-third of Americans prepare a detailed written or computerized household budget each month that tracks their income and expenses. About the same number prepare a long-term financial plan outlining their savings and investment goals in detail. If you are not part of this group, what do you do and why do you not have a budget?

Why is Budgeting Not More Widespread?

I believe that making a budget frightens most people. Most advisors and articles indicate that you must allocate money to many different categories, set priorities and keep track of every cent spent. This is difficult work and if you are doing it as a family there will be differences on what is important. Many people just find in less stressful to do the best they can without the details of a budget. While using envelopes or other such allocation methods works for some people, it can be a real burden. Many spreadsheets available list pages of categories for every imaginable expense and require that you enter totals for each month. This can be extremely time consuming and hard to keep up.

Why Is It So Hard to Manage Spending?

An in-depth study by Capital One (3), Every Dollar Counts, “reveals that the majority of Canadians feel they have lost control of their finances and a key problem is their inability to break free from bad spending habits. A staggering 76 per cent of respondents admitted that they know they spend too much money on certain items, but have a hard time stopping the frivolous spending.” However, the same study shows that 68 percent live on a budget. This is almost the opposite of the Gallup poll for Americans. Chances are the difference is due to the small sample size of both surveys, unless Canadians are really more diligent about managing their expenses.

To make things worse, the study also shows that family and peer pressure (4)(5) results in spending more than they can afford. Some are not significant items in themselves, but over time, they add up.

The key result from the study is that three-quarters of respondents know they overspend but cannot seem to stop what is referred to as frivolous spending or “vices”: going out for dinner (29%), buying cigarettes (26%), going out for lunch (25%), clothes shopping (24%) and buying lottery tickets (24%).

In addition, even with budgeting, many people cannot control impulse buying (6). Controlling the impulse is not easy and the resulting letdown later for not resisting it often takes away the pleasure felt at the time.

Why Should You Care?

How you manage your money will determine if you have the “things” you want in life (e.g. home, holidays, car). It also determines if you have a comfortable life and retirement. You spend a large part of your life earning money, so why not spend a little bit more time figuring out what you really want to do with what you earn. If you feel you do not earn enough, or conversely if you earn more than you can spend, to justify figuring out how you are spending your money, you could be missing out on savings that you can spend or save.

Saving a few dollars a week, such as on banking fees, drinks after work or during a game or an expensive coffee each day all add up. For example, if you save as little as $100 per month and put it into a Tax Free Savings Account, you will have over $33,000 after 20 years if invested at 3%. For 30 years it is more than $58,000. Try this yourself by using the spreadsheet provided in TFSA or RRSP – Impact of Reinvesting the Tax Refund.

Also, you may have heard the old saying that “a dollar saved is a dollar earned”. However, it is even better that this. If you want a few more dollars to spend, you can get a raise or take on an extra job. If it is a wage there will be deductions for taxes, Employment Insurance and pension, and perhaps other items. You will be paying taxes at the marginal rate, see Canadian Marginal Tax Rates – 2014, which can be anywhere from 20% to 45% depending on your normal income and which province you live in. In addition, in Canada, the Canada Pension Plan deductions are 4.9% and EI is 1.88% in 2015. That is, your take-home pay is from one-quarter to one-half of what you made. Put another way, if you save $100 from your existing expenses, you would have to increase your income by $133 to $200 to have the same $100 to spend. Thus, a dollar saved can be up to two dollars earned.

While it is always good to earn more, it is always prudent to make better use of what you already have by reducing your expenses wherever you can. You can only do this by examining your expenses and making savings that make sense to you.

Cash Flow as an Alternative

I do not like the word “budget” because it now indicates that it is a difficult process and requires rigid planning and compromises in how you live. There are many others that feel the same way (7). I now use a different approach that provides more flexibility, takes less time than a budget and has proven to be less stressful.

Managing Expenses and Cash Flow 01 CumThe approach is to show your income less expenses over a year on a chart to see where and when you have an excess or a deficit. This is called a cash flow and is used to highlight when you need extra money for major expenses and if your normal spending is as expected. A simple cash flow chart is shown above with the plan in green and the actual as a dotted red line. Notice that there are times when the line is negative, but by the end of the year there is an excess of money.

The key to using the cash flow approach is that, while you still need to categorize where you spend your money, you can make trade-offs between them when spending on one category exceeds your plan. You can also only use categories that make sense to you and provide you with as much detail as you want to track.

Over the years, I have found that my family has gotten away from using a budget with all of its negative aspects to the more flexible cash flow approach. If we overspend one month in one category from the plan, we can adjust the plan and/or adjust what we spend on other categories the next few months. Usually, we underspend on some while we overspend on one or two. The stress level drops significantly when you are not locked-in to a plan that no longer is reasonable for the circumstances.

Planning and tracking your expenses is simplified if you use the spreadsheet provided in Part 2 and buy everything on plastic. I am not the first person to advocate this approach. I have listed a few in the resources section at the end (8)(9).

You then do not have to keep track of every purchase yourself as the financial institution does it for you. Once you have access to this data it can be copied into the spreadsheet to generate the actual cash flow and compare it to the plan. Adjustments can then be easily made so that the overall financial objectives for the year are meet.

You should be able to load the transaction from your accounts and update the spreadsheet in less than 15 minutes. Do this once a month, or more often if you want to keep on top of impulse spending and manage your “vices”. This is much less than the time required by many other approaches that require you total your receipts by category and enter them for each month. You also get the fine control needed with the spreadsheet.

Be Careful When Using Plastic

Once you decide to use plastic instead of cash, you must be careful that you always pay off your charges for the month in the same month. Otherwise, the interest charges on credit cards will negate all of your effort to manage your expenses. Paying in the same month makes it easier to start fresh each month and not worry about having to find the funds later. (This is dealt with in detail in Part 2.) The advantage of using a credit card is that you can take advantage of the loyalty programs available (10). However, make sure that you use it for all the right reasons such as reducing your expenses and not to just collect the rewards.

If you cannot ensure that you payoff the charges each month, then use a Debit card exclusively. Just make sure that you do not have overdraft protection as this fee is often applied to each overdrawn transaction and it is normally very high (11)(12)(13). Also make sure that you have enough in the Debit card account to pay for all of your expenses for the month. You can get this from the plan on the spreadsheet.

Another way to save expenses is to select a bank and account that matches the types of transactions you do each month with either no monthly fee or a minimum fee (14). In many cases, if you keep a minimum balance you can save the fee. While this means one more item you must track, the savings can be $50 to a few hundreds of dollars a year. For example, with a fee of $10 per month and a minimum balance of $2,500, this is like getting 4.8% interest per year. The best I can find is a credit union with 1.95% for a high interest savings account, so having a minimum balance is much better than keeping the amount in a savings account.

Preview of the Spreadsheet

The spreadsheet has 3 sheets where you can quickly enter the income and expense plans for the year, paste the transactions for the month, review the actual expenses against the plan and update your accounts so you can see what funds are needed for each month. You may download the Excel spreadsheet by clicking on Download Managing Expenses and Cash Flow Spreadsheet.

It is very easy to enter your Income for each month by copying and pasting the values for the first month. There is a default list of about 20 categories of Expenses that you can easily add to or delete. Then for each month you can bulk enter values by copying and pasting the values for the first month. Or you can enter each month individually.Managing Expenses and Cash Flow Income and Expenses Table

It takes less than 10 minutes to do this. You can prioritize the Expenses by moving then up or down in the list and the “Left” column shows how much of your yearly income is left after each expense. When the value turns negative and red it is clear that you have planned for more expenses than your income can support. It is then easy to adjust the expenses to bring them down. The Cash Flow chart shown previously is automatically adjusted with each change.

Entering Transactions is very simple but it requires that you access your chequing and charge card accounts online. Select and copy them and then paste them onto the Transactions page.

Using the techniques described on Part 2, it is a few minutes work to add the Month and Category to each transaction. Transactions can also be entered manually if the need arises. The Cash Flow chart is automatically adjusted with each change.

To track how you are doing each month is detail, there are 3 tables and charts that can be set for any 3 consecutive months. They show the plan for the month versus the actuals as set by the Month and Category on the Transactions page. There is also a grouping of expenses that provides a high-level view of how much you have planned and are spending in major areas. This permits you to compare your expenses to national and regional norms. There are charts and tables for the year and each month as given below plus one for the totals from January to any month. Managing Expenses and Cash Flow 08 Month

To provide detail on how any specific Category is doing over a year, there are 4 charts that can be set to any category. This provides a good view of how the plan for the year is being tracked by the actual expense.Managing Expenses and Cash Flow 09 CumExp

The Accounts sheet is a key component to managing your finances as it helps you manage your cash accounts and credit liabilities so that you know what deposits are required for you to meet your expenses each month. There is also a section for managing all your accounts so that you view your worth at the end of each month. See Part 2 for details.

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 You may download the Excel spreadsheet by clicking on Download Managing Expenses and Cash Flow Spreadsheet.

Go to Part 2: Spreadsheet


(1) One in Three Americans Prepare a Detailed Household Budget   – Gallup, D. Jacobe, Chief Economist, June 3, 2013 return

(2) New Gallup poll shows two-thirds of Americans do not budget – Deseret News, M. De Groote, June 3, 2013 return

(3) Canadians Are Fessing Up To Their Spending Addictions – Capital One Press Release, November 12, 2013 return

(4) Majority of Canadians Blame Their Money Problems on Sneaky Spouses and Pushy Friends – Capital One Press Release, October 30, 2013 return

(5) Four Liberating Words: I Can’t Afford That –, E. Davis, November 19, 2013 return

(6) What Motivates Impulse Buying? – Psychology Today, I. Zimmerman, July 18, 2012. return

(7) Money Tip – Know Your Spending – retire, J. Yih, (no date) return

(8) How Credit Cards Can Make Your Household Budget Work Better – DailyFinance, H. Coleman, December 16, 2013 return

(9) Top Seven Reasons Why I Use My Credit Card for Everything – WiseBread, N. Dunn, September 17, 2014 return

(10) How to decide which loyalty program is best – the, S. Smolkin, August 5, 2014 return

(11) Overdraft Fees: A Guide to What Banks Charge -nerdwallet, J. Glover, (no date) return

(12) Overdraft is another way banks win and you lose – Financial Post, G. Marr, April 6, 2013 return

(13) Comparing Canadian Chequing Accounts Side-by-side – Urban Departures (seems to be 2014) return

(14) How to rid yourself of those pesky monthly bank fees – The Globe and Mail, R. Carrick, April, 16, 2014 return

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