Annual Expense Reviews - Answers to Your Questions
Some Examples and Explanations
Welcome to Saving Money with Andrew!
I received some great responses to last week’s post on reviewing your annual expenses. To break it down more, here’s how we did our annual review (I’ve blacked out the actual numbers).[1]
Step 1:
We added up all spending by using our bank statements (all of our expenses go through our bank account) to add up all of our:
Monthly credit card payments,
ATM withdrawals, and
Direct bank transfers (bills we paid by bank transfer)
The sum of these items is our Total Spending for the year. Then we subtracted any cashback and credit card rewards we received to get to a Net Spending figure.
Step 2:
We created categories for each major spending category. For most people, there really aren’t that many.
Step 3:
We started calculating the total spend for each category. For certain categories such as Rent or Daycare, it was very easy to know exactly how much we spent, because we receive individual statements for each. Same with Amazon because everything goes on our Amazon credit card. For other categories, we had to estimate.[2]
Finally, once we couldn’t think of any other categories, anything remaining went into an “Other” category which ended up being not very large (we simply subtracted each of the categories from our Net Spending number). The spreadsheet looked like this:
Step 4:
We used Google Sheets’ very handy automatic chart features to create a pretty-looking pie chart of the categories, which looked like this (note, a few of the very small categories were cut off):[3]
Then, we sat down for a while and discussed each category of expenses. We only had a couple of insights this year because we’ve been doing this process for several years and generally make at least one major change per year:
Our grocery bills were very high. We ended up changing to a lower-cost grocery delivery service.
We found we could save more by buying more private label/store brand household items, particularly for paper towels, toilet paper, and especially diapers.[4]
The other major benefit was psychological - doing this process helped us feel more in control of our expenses, even though some of that control is an illusion (especially when two-thirds of your budget is pretty fixed). But still something we like to do.
I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories. I’d love to hear about the results of your expense reviews and anything interesting you discovered.
[1] We used Google Sheets, which is a great tool and completely free.
[2] To estimate, we would sometimes review our monthly spend from an average month (for example, for entertainment) by looking at a credit card statement, and then multiply the monthly spend by 12 for an annual estimate. For travel, it was fairly easy because we generally only take a couple of trips per year. Other times, we would make an educated guess. Having the “Other” category that is simply Net Spending minus all categories helps keep us honest about our estimates, because if our estimates are wildly off, the Other total will not make sense.
[3] Note - charitable giving is not included on this list because we do it separately through a donor-advised fund (which helps us save money on taxes and has a low minimum initial deposit to create an account), but if it were included it would work out to about 12% of our budget. I’ll discuss this in a future post.
[4] We generally purchase Amazon’s store brands (Solimo, Basic Care, Mama Bear, etc) via Subscribe & Save (generally an additional 15% off on top of 5% cash back with the Amazon Prime Visa).