Calculating actual outgoings

[MyNameIsUrl]

Does anyone know of an online resource which helps people work out what they are actually spending?

I’m trying to help some friends who are in the run-up to retirement and all we can find are budget calculators which assume an existing knowledge of how much is spent. My friends don’t know how much they spend on groceries so they can’t enter it into a calculator. They don’t know how much they spend on clothes, meals out, holidays, or anything else.

What we would like to be able to do is work out that they spend (say) £20k a year on everything, and use that as the basis for how much they need in retirement, adjusted for obvious changes like commuting costs.

What I would like is something that helped by taking account of pay, credit card debt at some point in the past and now, savings at some point in the past and now, and work out what they’ve actually spent, even if at this stage it can’t be broken down into toiletries, pet food, etc.

Does anyone know of a ready-made online resource please?

[vrdiver]

I don't know of any online tool that will do this for them.

Since the question is a serious one (get it wrong and retirement may be rather different from what was envisaged) I'd recommend a serious effort to get a good answer.

I use Excel. One tab per month to record the raw data, then pivot tables for the analysis. With excel they can tweak it as their needs develop.

With no spending records, they can get a current budget by starting top-down. How much do they earn (after tax etc) and how much is saved - the rest must have been spent.

If they can get that figure for the last year (review pay slips, savings accounts etc) then they can make a stab at a current budget, since they know what the total figure is, just the details might be a bit off until they can get some real data.

If they don't do it already, get them to account for every penny (yes - exact numbers, not "oh, I think it was about £5....") by bringing receipts home and recording their spends. They need to do this until they have a good picture of what they spend - it could take a year if they have seasonal spends (like Christmas, summer holidays etc).

If they are in the habit of spending cash, at the very least they should make a note of what they started the day with, and what the end position was. The difference should be able to be remembered, but if not, get them to record it as "leakage" - cash that's just disappeared!

In parallel, they should start to make a budget - list all the bills they think are going to occur (insurance for car, house, health, holiday, pet, MOT, dentist, medicines, holidays, petrol/diesel, new car, car servicing, boiler replacement, - as much detail as they can think of, along with the amount and frequency - e.g. insurance might be annual in May, new car might be every 5 years, dentist every 6 months...)
Once they have the list, convert it into monthly spending equivalent (e.g. if insurance is £120 a year, that's £10pcm)

If they don't know what they spend but have old credit card statements, they can usefully go through those. E.g. last 12 statements show £12,000 of spends - review it and categorise it. They'll need a category called "miscellaneous" for all the line items they can't figure out! If it gets too big, then revisit, otherwise, don't worry.

It would be useful to agree on the level of detail* they want to categorise into beforehand: e.g. "clothing" or "his-clothing", "house" or "house", "garden", "hobbies" or "fishing", "walking", "art classes" etc. I've found the higher the level you accept, the easier it is (e.g. we record "hobbies", regardless of who's or which specific activity it was)

There will be things they don't know - that will reduce as the spending diary progresses. There will be things that change (e.g. no longer commuting to work, but maybe having lunch out more?) The thing about switching from work to retirement is that your spending habits can change as well.

Replacement costs such as cars, boiler, etc. might not seem urgent, especially if retirement comes with an initial splurge of cash, but if they are spending all their income, then replacements are going to be a nasty shock. If they pay for a car through PCP or similar they will have an idea of the monthly cost, but if they are going to lose the company car(s) or buy a car outright and then pay nothing until the next one is needed, that needs to be factored in as well. Ditto for other "multi-year" purchases, even if it's just a rough number so as to have something in reserve for when the boiler finally packs up!

Once into retirement, knowing not only how much cash is coming in, but how much of it you can safely spend and how much needs to be reserved for future bills (good ones like holidays, or more boring ones like a replacement car) gives a great peace of mind, whereas being "broke" every time a large bill or holiday invoice lands is a real stress!

VRD


* Analysis categories used at VRD Towers
Car - other
Car depreciation
Car Usage (fuel)
Christmas
Clothing
Emergency Fund
Entertainment
Gifts
Groceries
Haircuts
Health
Hobbies
Holidays
House
Investment Platform fees
Insurance
Gym / sports
Keeping Computer updated
other Travel
Parking
Pets
Tax
Utilities

[redsturgeon]

Does anyone know of an online resource which helps people work out what they are actually spending?

I’m trying to help some friends who are in the run-up to retirement and all we can find are budget calculators which assume an existing knowledge of how much is spent. My friends don’t know how much they spend on groceries so they can’t enter it into a calculator. They don’t know how much they spend on clothes, meals out, holidays, or anything else.

What we would like to be able to do is work out that they spend (say) £20k a year on everything, and use that as the basis for how much they need in retirement, adjusted for obvious changes like commuting costs.

What I would like is something that helped by taking account of pay, credit card debt at some point in the past and now, savings at some point in the past and now, and work out what they’ve actually spent, even if at this stage it can’t be broken down into toiletries, pet food, etc.

Does anyone know of a ready-made online resource please?

There's always this one from the same people who brought you the Lemon Fool
http://www.stoozing.com/calculator/soa.php

John

[Bminusrob]

I am coming at this problem from a slightly different angle. I stopped working nearly three years ago, aged 60 and a half. I had accumulated an amount of cash savings which I felt would allow me to live off the savings for four and a half years, at which point I will be 65; the "Normal Retirement Date" for my quite generous pension.

I have a spreadsheet which lists the basic outgoings - council tax, water, electricity, oil, car expenses, holidays, weekly shopping, insurances, subscriptions, birthdays, Christamas etc, etc. Summing up all the items in the spreadsheet, the total outgoing is just about £24k.

By working out how much my savings have gone down, I can calculate how much I spend each month quite easliy. Well, quite easily, but it is a complicated calculation, as it needs to take into account odds and ends of income, such as savings interest etc.

The end result of the calculation is that annual outgoings have been about £35k for each of the two full years since I have stopped working. You will note that this is a lot more than the spreadsheet indicates - about £11k, or nearly £1000 per month! In each year, there have been one-off expenses of about £4k per year. Last year, this was DIY, repurposing three rooms; the year before it was a rather expensive trip to see our son and daughter-in-law while they were on secondment in Canada. Setting these expenses aside, it means that we have unbudgeted outgoings of about £600 per month. Eating out probably accounts for £250 of this per month, and the rest is general living and doing things for two of us.

My point of writing this is to make it clear that budgeting is one thing, but getting an accurate number of total outgoings is not easy. Perhaps in the case of the OP, in the absence of a budget, they should reverse engineer the above, so work out how much has come in over each of the past year, two or three, assing what can be assigned to items in a budget, then try to work out how much is not accounted for, and do some serious head scratching.

Good luck!

[Alaric]

but getting an accurate number of total outgoings is not easy.

Putting as much as possible through a credit card gives you a monthly statement. Withdrawing a cash float of £ X every so often is another expense. Beyond that it's utility bills etc and Council Tax. Those should be on the Bank statement.

Running an approach of "use savings and assets until the pension kicks in", I had spent all the cash accounts, so had to resort to selling shares. That gives you an appreciation of how much you are spending as I had to liquidate something about every quarter to replenish the current account.

As a benchmark I knew that the credit card bill was around £ X per month, I would withdraw £ Y per month in cash and the utility bills etc would add to £ Z over a year.

[Dod101]

There is nothing better than a serious spreadsheet that gives a record of every pound spent. Over a year this is very revealing and is to me the only way anyone can see their actual outgoings. It does not matter whether you spend on a credit card, Tesco vouchers or old fashioned cash, just enter the amount spent every day.

As it happens I do not include overseas trips because I have a separate spreadsheet for those. They are funded from my State pension but they could be included if the person wants.

Dod

[Itsallaguess]

There is nothing better than a serious spreadsheet that gives a record of every pound spent.

Over a year this is very revealing and is to me the only way anyone can see their actual outgoings. It does not matter whether you spend on a credit card, Tesco vouchers or old fashioned cash, just enter the amount spent every day.

I know some people won't get on with spreadsheets, so as well as fully endorsing the above with regards to tracking outgoing expenses for as long as possible before retirement, with a view to getting as full a picture as possible as to where any spending is actually going, I thought I'd also point out that Microsoft Money 2005 (UK edition) can be downloaded for free using the following links, and is a free alternative option for anyone who would rather not get involved with Excel on their own -

http://moneymvps.org/

http://moneymvps.org/downloads/files/20 ... K-QFE2.exe

I've been using Microsoft Money for many years now, and it's superb to be able to see areas of spending so easily with this tool. You can be as granular as you like with regards to defining the specific groups of expenses, and I tend to group things in a relatively lumpy way, but for anyone who would like even very specific granular details, this is also easy to do with this free bit of software.

Possibly not timely enough for the OP, who may not have the historic details needed to populate the tool well enough now, but for anyone else who thinks this issue might affect them in the coming years, it's never too soon to start tracking your expenses, and then when the time comes around for you to be asking the same questions, you'll have the data available in a very digestible format....

Please note - tracking expenses using a tool like this really isn't an onerous task. Once you've set the software up, which doesn't take long at all, the actual entering of the spending data only takes seconds, so I'd really recommend anyone interested in this area of spending-visibility to take a look at this free tool and see if it can help.

I've got 12 years of spending data in Microsoft Money, and it's fantastic to see where my money has gone. I still wish I'd started tracking my expenses sooner though....

Cheers,

Itsallaguess

[TwmSionCati]

the OP ... may not have the historic details needed to populate the tool well enough now

Most of my banks provide printed annual summaries — income £20-0s-0d, expenditure £20-0s-6d — and five from each would suffice to do what the OP wants, namely to work out what his friends spend a year “on everything”.

But if those have been binned, online’s the way to go: download the banks’ statements, cross-load the data into Money or similar, and do the adding and subtracting electronically. For finer detail, categorise the main expenditures as necessary, into toiletries, pet food, etc.

the actual entering of the spending data only takes seconds

Sounds alarmingly like re-keyboarding! (I don’t know anything about Money, btw, so I may be misinterpreting.) But that’s not at all what I meant by cross-loading!


TSC

[Itsallaguess]

the actual entering of the spending data [into Microsoft Money] only takes seconds

Sounds alarmingly like re-keyboarding!

I appreciate what you mean, and at first glance it might well sound like a high level of re-work, but the problem with relying on yearly bank statements is that there would be no verification process involved until the time came to look at the statements, and at that point any verification process that I might want to carry out would be a largely historical one, which I imagine would be quite difficult to carry out.

In practice, I use my on-line bank-account figures to verify the on-going data that I've entered into Microsoft Money, and not the other way around....

I make mistakes (I may forget that I've spent something and have not yet entered it into Microsoft Money, although in practice this rarely happens...), and banks make mistakes (although Natwest have been extremely reliable for over 30 years now..), but the chances of us both making the same mistake are really quite small....

The downstream benefits of being able to both manipulate the Microsoft Money configuration in terms of my grouped spending patterns on the way in, and then to disseminate that data on the way out, to tell me things I want to know about those spending patterns, really is worth the very small amount of weekly time I spend keying any actual data in.

Don't forget that all of my regular outgoings are taken care of automatically by MS Money once they are set up in the tool. The only keying-in of data is any spending that is carried out over and above that.

In practice, apart from the regular weekly main-shop, the number of additional weekly transactions is really quite small, so I wouldn't want anyone to think that using MS Money involves any real amount of work once set-up, as it doesn't in practice.

Cheers,

Itsallaguess

[JohnB]

Accurately recording things will be hard work, but might introduce behavioural change when some areas stand out.

A much simpler approach would be to have one credit card for non-work expenses, one for work ones, and stop using cash/debit card transactions. Then an annual look at the bank statements would have fewer transactions to analyse