Reader Question: Methods for Tracking Expenses?

I kind of had this problem earlier in the year. Basically, I found myself establishing a plethora of categories, and it was just getting out of control. (I tend to obsess about things.) Eventually, I realized I was engaging in what some GTD people call “productivity porn,” and pared it down to about a dozen categories I use for everything.

For sales tax, I’m currently doing the obsessive thing (natch), and splitting the tax on the receipt. Most items are marked with a “T” if they’re taxable, so it’s not too hard. Sometimes, though, the rounding of pennies doesn’t quite work out…

For next year, I’m thinking that I could just track “sales tax” as a separate category. I’m kind of curious how much it eats up, anyway.

My mantra is “only track expenses that you can do something about.” I don’t keep track of sales tax because there’s nothing I can do to reduce it (except by buying less, bartering more, or moving somewhere where the sales tax is lower). My main reason for tracking line item expenses is to identify areas where I’m spending more than I should. The categories I keep are very broad, and I only start splitting them out when I notice that I’m sinking significant sums into them. For example my “Household” category includes such diverse items as kitchen appliances, furniture, potting soil, and my cable bill. I don’t keep track of the cable bill separately because it’s a fixed expense and there’s nothing I can do to reduce it other than to cancel the service (I have the most basic no-frills cable subscription, so it’s not like I can choose a cheaper option). On the other hand, I do keep track of my Internet expenses because I work at home and my monthly ISP bill is reimbursed by my employer.

Track sales tax separately. Some places, you can deduct it on your income taxes, I believe, which would be reason enough to look into it. But either way, because it’s a fixed percentage, it’s not really material to your spending plans. Control the taxable expenses and it’ll automatically decrease sales tax.

I’ve always included things like junk food and alcohol with groceries; I don’t usually buy non-grocery items at the grocery store. If you really are trying to cut back on those items, separate tracking might be appropriate, but most of us know better ways to cut back on junk food and as I only rarely drink, I don’t see the point of considering it differently than soda or juice. Obviously, if you buy groceries and clothing in the same trip, you’ll probably have to do some splitting.

Really, unless you have a particular reason for wanting to control a specific area, broad categories work just fine. Put your charges to the grocery store under groceries, your charges at the gas station under fuel (unless you’re really fond of buying other things there on a regular basis), and so on. If you determine you’re spending too much at the grocery store, you can always start breaking it down further later.

I’d basically treat it the same as a small business. Expense categories but no need to track exactly how much we’re spending on pens until we’re on the second box in a week and nobody seems to actually be using them… and even then that’s more of a use issue than expense.

I agree with Brad. Keep your categories broad. You can always dig for details if you need them. A nice trick I’ve found is to name the categories “01 Rent,” “02 Food,” etc. I also never use subcategories. It really speeds up data entry. It also allows you to customize reports that would otherwise be printed in alphabetical order.

For me, all Target, etc. receipts go directly into a miscellaneous category. I’m trying to get better about splitting things out, but it is a pain. For a while I used a percentage method. I looked at a bunch of receipts and determined the common categories and percentages and applied them to most receipts. Now I only track specific categories, like clothing, and split those out from the receipt. I buy papergoods when I buy groceries or in a separate trip. Also, you’ll save money if you limit the focus of your big box shopping trips. That singing Snowman may be cute but you’re there for TP, you can always stop back another time.

If I care enough to split the item out, then I care enough to include at least a rough estimation of the taxes charged. They are part of the cost of the item. I like the rounding idea.

Microsoft money has a feature where you can enter in the splits without the tax (so just type in the items from the receipt) and then it will split the leftover money (the tax) correctly between the items you’ve put in.

I’ve found this to be the best way to deal with the tax issue. Don’t know if Quicken has a similar feature…

To Jamie:

I’m not trying to be facetious here…

If you are regularly buying “everything from clothes to groceries to household cleaners to furniture, all in the same trip”, I think it may point to part of the problem. If you have your spending under control, I would estimate you would run into this problem only three or four times a year. That wouldn’t be a lot of time for me to split the bill on those occasions.

So here’s my tip. If you are finding yourself regularly buying so many things from the big box stores: Decide the purpose of the trip to the big box store before you go. Is it for groceries? Or are you buying electronics/furniture? Then stick to the plan of what you are buying. If you see something interesting while you’re there, take a note of it and bring only the note home with you to reconsider or shop around before you head back to make the purchase another time.

Thoughts?

We just write our expenses down on a calendar on the wall. Every day when we buy something we’d make a note “$100 – Grocery, $50 – fuel” or whatever it is and then total it up at the end of the week. We know from our budget what the weekly total should average out to, so we can get a good idea of how we are going by looking at the last few weekly totals. I’ve tried getting more detailed by having separate totals for different categories and found that it was more work than it was worth.

Squished8, I think you’ve injected a very reasonable thought into the discussion. So many of us head to Costco to load up on great buys of toilet paper and chicken breasts, and walk out with a new television stand and a doohickey for the videocam. That may be part of Jamie’s problem.

Out here in Portland, Oregon we have a local chain called Fred Meyer’s that has reasonably-priced groceries (ie, stuff you would find in a traditional grocery store like produce, dairy, bread, cereal, flour, dog food). They also have substantive garden, automobile, clothing, office and household furnishings departments. I track Clothing, Home (which includes the garden), and Transit (which includes car costs). When I’m purchasing a substantial amount from one of these departments, I separate them out on the register moving belt thingee, and ask the cashier to give me a subtotal of each group. Voyla!

Hey, I used to track the spare change I spent in vending machines. I think I’ve come a long way!

Basically, there are 3 major categories: Regular which include you monthly bills, irregular which include yearly pyaments like say insurance or any such kind of fees; and Variable which varies from month to moth. Got this idea from PearBudget. I further categorize them into these categories: Rent/mortgage, utilities which are a fixed amount. I also have categories for saving, groceries, travel, medical, educational (for my kids school expenditures), phone, and gifts for church contributions and gifts on various occasions. My Miscellaneous category covers my insurance and all big budget items, and unforseen events. Budgeting has improved my finances tremendously, and I am less stressed out.