How Can I Estimate My Spending Without Doing a Spending Journal or Log? Part One

The best way to track your spending is to write down every single cent you spend and why. (If you pay by debit or credit it’s still to the penny not the nickel.) But if you don’t, won’t or can’t, you may need to estimate your total spending without the benefit of a journal or log: here’s how I estimated our profligate expenditures.

In the Beginning Money Was Tight and Controls Were In Place to Identify Places to Cut Costs

When I finished university and started my first job, I bought a notebook and started tracking my spending. Everything, from the 25 cents I put into a parking meter to save a stranger from a ticket to the $99.98 I spent on a portable vacuum cleaner (no sales tax in Alberta in those pre-GST days!) was written down at the end of the day. I knew I could lose my job at any time due to the recession and saving an emergency fund was priority one.

It was an interesting exercise. I learned, for example, that I was donating and gifting way more money than I would have estimated. Every birthday, birth, transfer and retirement in the office was celebrated by passing the envelope. Although new hires weren’t expected to contribute much, even $5 (which would be about $10 now) started adding up when you multiplied it by 2 to 4 events per month. And the endless charitable appeals, particularly for the United Way, but also for the Cancer Society and other big name charities also were surprising. Our office often had things like pay $2 to dress-down on Friday, all money going to the charity. Or selling daffodils or carnations or other flowers for the charity of that month.

I’d always known eating out was expensive and I limited myself to one lunch out a week. I made sure it was worth it, especially in terms of flavour. And I chose food that would be difficult or impossible to replicate at home so that it added to my enjoyment. Still, it was sobering to see the cost of one meal was over half what I spent on groceries for a week.

Eventually, though, my income far out-stripped my spending. So the logging of my spending in a journal stopped.

As We Approach Retirement Understanding Our Spending Becomes Important Once Again

Once retirement became closer to our current age than our first jobs were, it began to be important to understand our spending again.

We save over half of our income, so we haven’t been very worried about the details of our spending. We are both savers by nature and both people who prefer doing things to buying things so we knew we didn’t have to agonize over each time we sponsored someone’s bike trip down the Don Valley for $50.

But our retirement income will be very low. We don’t have defined benefit pension plans and I won’t get the maximum CPP. A lot of our savings are at the whims of stock market and we don’t trust equities not even blue chip dividend stocks.

So the inevitable question loomed: how much do we spend now and how much of that is discretionary? When will we have enough income to retire?

The Black Box Method of Estimating Annual Spending for a Very Simple Life

When I was a student it would have been easy to use a Black Box method to check my annual spending. In those days I had no credit card and debit cards had not been invented.
I would have been able to check

IN = total income in (add up deposits to my bank account from my jobs and from my parent’s kindness)

CHANGE = change in my bank account balance between the start of day balance on January 1 and the end of day balance on December 31

SPENDING = IN – CHANGE

For example, if I had added $ 1000 to my account during the year, and by the end of the year my account had shrunk from $2000 to $500, then

IN = $ 1000

CHANGE = ($500 – $ 2000) = $ – 1500

so my

SPENDING = 1000 – (-1500) = $ 2500

First year university looked a lot like that as I spent my life savings on text books and train fares.

The Black Box Method of Estimating Our Annual Spending Now

Nowadays, the equation is the same but much more complicated. I’ll explain in Part 2 what I had to do to estimate our annual spending now.

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Do you track your actual spending or do you just wing it based on your credit card report? Do you realize your office is emptying your wallet but you’re not sure how, when or where? Please share your views with a comment.

What Was Our Personal Rate of Inflation in 2014 and How Does It Affect Our Retirement Plan?

Neither my husband nor I work for the government or any pseudo-governmental companies so we are not getting an indexed defined benefit pension when we retire. We are not getting any kind of retirement benefit that will increase with the rate of inflation, other than our CPP and OAS. That makes it important to me to know roughly what rate of inflation we might expect in retirement because any inflation means that what our income can buy will diminish over time. So what was our personal rate of inflation for 2014 and will it impact our retirement plans?

It’s Worth Tracking Your Expenses Even If You Are Saving Lots of Money

We don’t budget the “normal” way. We plan on meeting our bills and saving for various short- and long-term goals and then we spend what we want. Our hobbies are low cost and very satisfying. So usually we end up with some extra that we add to our long-term savings.

We do track our expenses though.

And at the end of the year, I back calculate how much we spent on discretionary things to ensure it hasn’t increased dramatically over previous years.

Tracking our expenses lets me spot things like leaking faucets and the long-term trend downwards in the price of natural gas. That helps avoid complacency in planning for retirement: eventually that nat gas is going to go back up and probably even above what we paid in the early 2000s.

Adding up the monthly bills also lets me estimate what our personal rate of inflation was for the previous year or years.

How Much More Did 2014 Cost Us than 2013?

And the actual retail value was….

4.3%

Ouch!

I knew we paid more for nat gas last year because of the colder winter (and various other reasons.)  Our usage climbed about 20% and so did our cost.

And I knew that our property taxes had climbed again thanks to local government issues.

But I had no idea the total was so bad.

Our electricity costs, for example, rose 10%. But our hydro usage only increased less than 3%. Thanks Ontario Hydro! I remember they said they were going to shoot up the costs for all times of use but somehow I didn’t expect to see it actually happen.

And our water costs increased 10%, even though the volume of water we consumed stayed the same. Crumbling infrastructure” comes with a high price tag.

How Does This Personal Inflation Rate Affect Our Retirement Plans?

Well, it makes the beach house in the tropics look increasingly unlikely.

4.3% means we might have to work longer or spend less in retirement. We could try investing for higher returns, too, but discussing that would take a whole separate article.

Sheesh. I think I’d better go have a drink to recover from this shock. It can’t be water, though: I can’t afford a higher usage bill on top of the increased rate. Maybe I’d better go squeeze some of those crabapples still clinging to the tree: I can only hope they’ve fermented.

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Was your personal rate of inflation close to the CPI that Ottawa calculates? Or do you wonder what on earth they buy and live on to get such a low rate? Please share your views on whether you are losing ground to inflation with a comment.