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Money Advice for Life
Kick-start your finances: where does my money go?
Not sure where all your money is going? This blog helps you dig deep into your spending habits and understand where your money is going each month.
When you think about your finances, do you immediately feel overwhelmed and stressed? Do you ever wonder where all of your money is going? Do you keep saying you’re going to get on track with your finances tomorrow, but tomorrow never happens?
In order to do so, you first need to understand how you spend your money. We’re here to help. In this blog, we’ll look at your spending habits and at the end, you should have a better understanding of exactly where your money is going. Before starting though, be sure to check out and complete Kick-start your finances: goal setting.
To complete the steps in this blog, you can do online using a personal financial management tool or manually. Regardless of the method you choose, you will need to gather the following information prior to starting:
Any financial statements from the last year including bank accounts, mortgages, investments, lines of credits, credit cards, etc.
Pay stubs showing the income you made in the last year.
Any other documents that show income or expenses incurred last year that may not show on the documents listed above (i.e., receipts for cash purchases, etc.).
Step 1: What is your monthly income?
This means all the money that you make – any source of income including your pay cheque, support payments, property income, etc. Look back at the last 12 months and write down all sources of income you made each month. Note the take-home amount (after deductions) as this represents the money you have available to spend.
If you received any non-guaranteed income, such as tips or money as gifts, note in a sub-category called ‘Extra Income’. Separating this amount is especially important when determining your monthly income for budget purposes. As this amount is not guaranteed and unknown, it shouldn’t be included as income when setting a budget; instead, any extra money received should be noted as ‘Extra’ and go towards helping you reach your goals.
Knowing the money you bring in helps give you an understanding of what money you have to manage. Later on in this blog, you’ll also use this amount to see if there were any months you spent over what you actually brought in.
Step 2: Where does my money go?
When we see how much money we bring in, sometimes we are shocked and wonder where it goes – especially if we aren’t consistently budgeting and tracking our money. To understand where your money goes, categorize each month’s spending transactions for over the last year. Categories should be specific and could include:
Utilities (separate per utility to provide a further breakdown of each cost)
If you took out cash and are unsure of what purchases you made with it, place into a category called unknown.
Being as detailed as possible is important to really help you understand your spending habits. In order to compare your spending to your monthly income, categorize each month’s spending individually. To see a yearly total, simply add the category’s total for each month.
Once all transactions are categorized, you’ll be able to see what you spent per category. Take these amounts and compare to the recommended spending guidelines below:
25-40% on housing;
10-20% on transportation;
40-50% on living expenses such as groceries, etc.; and
10-20% on savings.
How do you compare to the recommendations? Were there any categories you didn’t realize you were spending that much on?
When you look at spending as a whole vs. individual transactions, the results can be shocking. Typically, when we make smaller purchases, we don’t tend to think of them as making a difference; grouping similar purchases together though, give us the big picture and some of the small things can actually be bigger than what we thought.
Step 3: Am I spending above my income?
To understand how your spending compares to the money you’re bringing in, take your monthly income and minus the total expenses you had that month. Were there any months you overspent? What products, such as credit cards, etc., did you use to compensate? If you found any months that you overspent, take a look back at the different categories and transactions – was there anything you could have done differently?
An additional bonus for Conexus members:
As a Conexus member, you have access to our Personal Financial Management tool which will make this challenge a bit easier to complete. Through the tool, you not only can see all of your Conexus accounts but you can also connect and see any accounts you may have at another financial institution. The tool does its best to categorize your transactions automatically, but you may need to change the category on some transactions from time to time.
Another benefit of using this tool is that you can set up budgets later on. And hey, if you’re not a Conexus member but really want to use this tool, consider becoming a member today!