My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Thursday, October 7, 2010

Where Did My Money Go?

A common issue I have uncovered over the years is that many people have little or no idea how they spend their money. Having a finger on the pulse of your spending is important for two planning reasons. Firstly, on a month to month and year to year basis, if you have the numbers in front of you, you can revise your spending habits or reallocate your spending. Secondly, when doing financial planning or estate planning, it is important to have a grip on current spending to extrapolate those costs going forward.

When I ask people why they don’t track their costs they often cite a lack of time or say they just don’t have an accounting inclination. While these are both valid reasons, with the advent of online banking and simple software like Quicken, both those reasons for not tracking spending are somewhat muted.

I use Quicken Cash Manager (which retails for $45) rather then Excel, since I can reconcile my bank accounts and track my expenses. Quicken Home and Business, which retails for around $100, provides some additional investing and accounting tools. If someone has an incorporated business I suggest they purchase QuickBooks or QuickBooks Pro.

I use Quicken to reconcile to my bank accounts to make sure I don’t bounce any cheques or prepayments. I find the most valuable tool is the monthly and yearly spending summary, which is created automatically if you are tracking your bank accounts. The yearly report is eye opening and often leads me to fits of nausea when I review how much I spent during the year.

I will admit that many people, including myself, have trouble keeping track of every cheque they write. I either post any cheque over $200 immediately in Quicken or I note the cheque amount and who it is for on a piece of paper and post it when I have a minute. Then on the weekend I go to my online bank account and post all the entries for the week, including smaller amounts I have not posted, which allows me to reconcile my account to my Quicken. Quicken even has a function to connect to your bank account.

The final step to keep things timely is to input all the pre-authorized amounts (e.g. car payments, insurance payments and realty taxes) at the beginning of the month. This is fairly easy to do since they are the same each month and the transaction can be set up once on a recurring basis.

Once you get in the habit, tracking your finances is easy and allows you to budget your costs and set goals for monthly savings. Keeping track of expenses and your bank account may not be fun, and may require half an hour to an hour a week, but the return is substantial for the time invested.

A topic related to personal budgets is ensuring monthly costs are reasonable and the services we are paying for meet our current needs. Many of us do some due diligence when signing up for telephone, internet, insurance, etc. However, once that diligence is done, if you are like me you no longer pay attention and just pay the monthly bills unless something looks out of “whack”.

Last week my wife decided we need to change our telephone long distance plan to include more long distance time in Ontario. She called Bell Canada and was told from the outset that our plan was way out of date, we were paying $5 too much, and we could have two additional features for free. When she started discussing our long distance needs, the reason for the call in the first place, my wife was told we already pay $4.95 for long distance that we are not using.

Once the dust had settled, we had the exact same monthly charge, two additional services and hundreds of minutes more long distance. The moral of the story, maybe once every year or two, call up your service providers to review what you are paying for to ensure you are getting the best bang for your buck.

Along the same vein, if your children are driving, have good marks, and are moving up their various levels of licensing and/or go off to University (and not driving while at University), there are various reductions to your car insurance bill that are not necessarily clearly known or voiced by the insurance companies.

I am waiting for my free ticket from Brazil for 2014
I have been in Europe twice during World Cup years. The first time I was in Italy in 1982 and this year I was in Spain during World Cup 2010. Both times, the country I was visiting won the World Cup.

I only remember bedlam in Italy.  In 1982 I was not even aware the World Cup was on because at that time I thought soccer was a sport for sissies. However, after enduring hundreds of games and tournaments for my son, who played rep soccer, I have come to appreciate the game and follow it to a small degree. Thus, I was quite aware that I would be in Madrid during the World Cup final.

Spain made it to the finals and we ended up watching the final game with a hundred thousand of our best friends. Actually, we tried to watch with a hundred thousand of our friends, but the street was blocked off by a huge TV screen so we watched the game in a hotel with the Spanish employees. As you know, Spain won in overtime. We were treated to free Champagne at the hotel before wandering outside. It was a mass of partying humanity. The celebrations were fun and joyous and a great outlet for many Spaniards suffering from a tough economic climate. It was a great experience and one that I will never forget.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

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