Analyze Expenses With This Alternative to Budgeting

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Do you have an effective system to analyze expenses? Did you know that there is a budget alternative for managing your spending?

In Your Money or Your Life, Vicki Robin and Joe Dominguez show how to use a tabulation system to analyze expenses. It serves as a budget alternative, avoiding two pitfalls of budgets. Ultimately, it provides a more holistic view of your spending.

Read more to understand this effective way to analyze expenses.

Analyze Expenses With Monthly Tabulation

To analyze expenses with monthly tabulation, you will develop different spending categories for what you spend money on. Next, you will create a way of tabulating your monthly spending and sort your expenses for the month into each of your categories. Lastly, you’ll use your real hourly wage to calculate how much life energy you spent in each category.

How Is This Different From a Budget?

Some finance programs have you make a budget to help you analyze expenses and plan how to spend your money. 

This program avoids two pitfalls of budgets:

• They aren’t detailed enough to capture your unique spending habits. Developing your own spending categories will help you get a more accurate picture of your spending patterns. 
• They don’t encourage you to reflect on your spending. With a monthly tabulation, you’ll gain a clearer picture of your spending and evaluate whether or not it’s worth it.

With a tabulation system, you don’t just track expenses; you analyze expenses.

Analyze Expenses by Categorizing Them

Step 1: Develop Your Categories and Subcategories

First, develop spending categories and subcategories that capture what you spend money on each month. For example, let’s say one of your spending categories is “Food.” If you realize that you’re frequently buying vending machine snacks in your office building, include “vending machine snacks” as a subcategory of “Food.” Find a balance between capturing more detail than the broad category, but not driving yourself crazy.

Here are some potential categories and subcategories:

Food

• Food for home eating
• Food for sharing with guests
• Restaurant visits 
• Snacks

Housing

• Rent or Mortgage
• Utilities
• Renter’s insurance

Clothing

• Leisure
• Work
• Athletic
• Shoes

Pro-tip: consider subcategories that reflect emotional reasons for spending, like buying clothes to make yourself feel better.

Transportation

• Car
• Public Transit
• Ride Shares
• Auto Insurance

Electronics and Tech

• Cell phone
• Internet
• Wearables (ie. a smartwatch)

For Fun

• Television/Movie streaming services
• Music streaming services
• News subscriptions
• Alcohol from bars
• Movies
• Kids’ entertainment

Health

• Gym Membership
• Vitamins
• Prescription drugs
• Nonprescription drugs
• Health Insurance
• Doctor’s visits

Unexpected Expenses

There are often large, unexpected expenses that occur each month. Examples include:

• Car repair payments
• Once-a-year insurance expenses
• Paying down a chunk of your house

Not all unexpected expenses come up each month, but usually one will. Choose a strategy to account for these. You have two options:

1. Put unexpected expenses in whichever subcategory they fall in. Over time, you’ll build a sense of how much you spend on unexpected expenses each month, regardless of category, and learn to have money on hand to deal with them.
2. Prorate expenses that you pay once per year across 12 months. If you pay $600 for homeowners insurance once a year, divide that by twelve and include the monthly figure in your expenses each month.

Miscellaneous Categories and Considerations

In addition to the above, make a small table that includes each of your income streams. Eventually, this will include interest from Investment Income (discussed in Chapters 8 and 9)

Also make sure that you separate business and personal expenses. For example, what percentage of your time using your phone goes toward work versus personal use? Split the cost accordingly.

Step 2: Create Your Tabulation System

List the categories you’ve created in a spreadsheet or similar tool. You’ll use this to sort your monthly expenses into your categories and subcategories. 

The table below shows one way to set it up:

(1) Total spent ________
(2) Total income ________
(2)-(1) Savings ________

(Don’t worry about the blank columns for now. You use them in Step 4 of the Your Money or Your Life system.)

Once your system is in place, follow these steps to understand your spending for the month:

1. Place each transaction in its appropriate subcategory.
2. Total the transactions in each subcategory, category, and overall.
3. Count any cash you have leftover, and note the balance of your bank accounts. 
4. Calculate your savings for the month:
   1. (Income- Total Expenses) +/- error
   2. Error is any unaccounted for money you have, lost or gained.
5. For each subcategory, calculate the hours of life energy you spent by dividing the total by your real hourly wage.
   1. Example: $80 on magazines divided by $8.42 = 9.5 hours of life energy
   2. Assess: are the hours of life energy that you expended to make that purchase worth it?

When you analyze expenses with this budget alternative, you have a much clearer picture of your spending.

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