Gather data 2This is the second of six articles in which we cover how to create a budget. The first post, Is a Budget Necessary? covered why a budget is important. We hope you’ve bought into the idea and now you’re willing to try to put a budget together. 

So what’s next? The simple answer is you need to gather a lot of data about yourself.

The easy part: how much do you earn?

If you receive a salary slip, gather the last few months.

If you’re paid in cash and it changes regularly, then you’ll need to keep track of how much you received over a few weeks/months. If it’s a fixed cash amount, then this is not a problem.

Some of us may have investments (lucky devils!), so we might have interest or dividend income as well. But we have a particular view of this. We’ll come back to point later in this article.

The hard part: how much do you spend?

Most people underestimate what they spend, or more specifically, they do not have a clue! If you ask them, you’ll get a vague answer like “food and ting”. But ask them to say in dollars, how much they spend a month, or worse how much on food each month or year, you’ll see their eyes glaze over as if you just asked them what was the square root of 107.

Continuing with my personal story. After recognizing I was in a difficult situation that clearly could not continue, I said to myself, “I am an idiot.  WHY am I in this position?”  Well I knew I wasn’t an idiot, but I was astounded that I did not know what I was spending on to be in the red (broke) so soon after being paid.  From that point, for the next 6 months I wrote down and tracked every single dollar I spent. I even noted newspapers each day.

Every month I would tally up the expenses for the last 31 days, and try to put them into basic categories, food, entertainment, car costs, etc. And then I would be in shock at where my money was going. I was spending $X on that?! It’s the revelation moment we referred to earlier.

Anyway, the reality is the only way to know for certain what you spend your money on is to write it down.  Walk with a small notebook, or better yet, use a note-taking app on your phone, and write down everything you pay for (whether in cash, credit card, debit card, or cheque).  Do it everyday, preferably as soon as you make the purchase.

When I started tracking my expenses, the concept of doing a budget was nowhere near my thinking, meaning I did not set out to create a budget. My only objective was trying to figure out where all my #!@#& money was going because I obviously was not living within my means.  I would only learn afterwards what a powerful tool a budget could be and the necessity of this 3 to 6 month exercise to figure out what I was actually spending on.

I used an all-cash approach (we didn’t have no smartphone in dem days). On day 1, I withdrew $500.00 (for example) and noted down all my expenses during the day. At the end of the day, I counted my remaining cash and made sure the cash I started with, less the expenses I wrote down, equaled ending cash.

Sure it was tedious. But it worked. Just find a routine that works for you and stick to it. Your only end-goal is to identify every dollar you spend because that is the information you need to start.

A note about credit cards

It’s tempting to think that it’s an excellent way to track your expenses because you receive an itemized statement.  We agree with this, but just remember a credit card statement does not necessarily show transactions on a calendar day basis, meaning from Day 1 to Day 30 / 31.  It will show transactions based on a billing cycle e.g. 12th of one month to 12th of the following month.  For your budget, you need transactions for each month e.g. Jan 1 to Jan 31.  So you’ll have some adjusting to do.

Actually we think the biggest problem with using credit card statements is that most people forget to keep a proper track of their cash payments, so just be careful.  Cash leaks away quickly.  You have to be vigilant to write down every cash transaction when it occurs, otherwise it’s a slim chance that you’ll remember later on.

Here’s the important point: no one can do this for you.

We are offering a service to help you prepare a budget, but this is the most important piece of information we will need and we can’t do it for you.  Yep, we can guide and give a few tips, shortcuts, etc.  But the basic tracking is yours to do.  Trust us, it only takes a few days to get accustomed, but once you’re serious about getting control of your financial future, it becomes so routine that you don’t even notice.

Don’t end up wishing you had started sooner.  Our message is commit to your future; it’s not hard.  It takes a little practice and you have lots of tools these days to help.

You need 12 months of data

Most people think about their money inflows and outflows on a monthly basis.  Our parents routinely did that.  A parent got paid and then together they will figure out the coming month’s expenses and try to save anything left over.

I got trapped in this bubble as well, thinking I was in control.  Except every other month or so, some unexpected crap would come up e.g. car insurance.  And of course when that month arrived, I would be scrambling because for that month, my expenses exceeded my income.  Nice.  Good job planning.

It is only “unexpected” because it was not a regular monthly amount, it was once a year, and in the case of car insurance, I only thought about it when I got the renewal notice.  If you think hard enough, you’ll realize there could be quite a few examples of this.  Food, rent, loan payments, and entertainment, are not your only expenses.

I realized the only way to get around this particular pitfall was to have a 12-month estimate of income and expenses, January to December.

So I used the first few months of expense info that I wrote down and used it to project what the entire year would look like. I thought long and hard about the “unexpected” payments and tried to put them in as best as possible in the month I thought it would be incurred.

When I was done, I looked at 3 things:

  • My 12-month income less my 12-month expenses. This was my projected savings for the year. Well I nearly fell off my chair. There was barely anything left over! I could not believe that I worked for a whole year just to pay bills! I was just handing over my money to other people!
  • Then I looked at my monthly income less expenses and again I was shocked! There were several months that I was in “deficit”. This means, I had more expenses than income. If I did not take a 12-month view, I would have fooled myself into thinking that in one particular month that I had lots of “surplus” (and probably would have found something to spend it on). Not realizing that I needed to keep that surplus nice and safe to cover the months when I was going to be in deficit!
  • The last thing that really surprised me was how much money I was spending for a year on certain things, like entertainment or buying food or on gas (plenty liming). The amounts probably aren’t a big deal when you think about it month-by-month. Yes, I agree you MUST go to a fete for Carnival, but when you add that to the entertainment for the rest of the year, you are usually surprised how much those “MUST” events actually suck up.

On a yearly basis the size of the total expense is what drives the point home. Some of these costs run into thousands of dollars, depending on the individual. When you think of it in thousands, you really do a double take and say to yourself, “Whoa! I spend $X thousand on that????  I must be mad!”

Do not be afraid to project

A lot of people seem to be afraid to project for 12 months. Yeah, we get it, it’s easier to work with actual expenses, but don’t worry too much about getting it 100% accurate.

For example, if you started in June, and gathered information for June, July, and August, that’s enough to use to project for the missing months. In September, you continue to keep track and see what you missed in your projection. I assure you, after a couple months, you’ll be so immersed that the likelihood of your missing something important will be very small.

It’s a work in progress, until you see a whole year through. After that, you’ll be fully in control of your expenses and you probably will not need to keep track expense-by-expense anymore.

We stopped doing detailed tracking years ago because we understand our expenditure profile and we use short cuts. Most months, we don’t even think about it because our actual expenses are so close to what we projected.


Usually this is the least fun part, but this is the only way to know if you are identifying all your expenses. Let us explain, using what we think is the easiest approach – a bank account.

Most of us have a bank account, so when you get paid, put your money in the account (some employers credit your account directly). Then make your payments from the account by withdrawing cash or writing cheques. This way, you have both a starting bank balance and an ending bank balance.

Your expenses, which you have been tracking as you make each spend, should be the difference between the two bank balances. If it is, then great!  You’ve kept track of everything. If it is not, then most likely you missed an expense, so you need to be more careful next month.

Whatever method you choose, you need to be absolutely certain that you have identified ALL your expenses each month.  Missing a few dollars ultimately doesn’t matter, but you need to make sure you aren’t missing something big, or that a few “small” things aren’t adding up to one big thing!

Now that you’ve gathered the data, let’s use the sample Cari$ Budget spreadsheet to pull everything together. Read on to the next article in this series, Use Cari$ Budget to Pull Everything Together.

If you have questions about anything in the article, please feel free to let us know in the comments below!

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Hi. I hope you enjoy reading the posts! I have 20 years regional and international experience in financial services, and I am passionate about helping others achieve Financial Freedom by making wise financial decisions. Keep coming back!

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