Think positive - it's the New Year!

Yes, I know that's a spring photo with the peach tree in gorgeous bloom, and depending where you live in the world it's either summer or winter right now, but I was thinking spring.

Spring, because it's the New Year and the chance to begin again with anything you want to change in your life. For me, it's the desire for increased financial security, doing a job I love, and working from home. The garden is one of the best things about being at home. Also, it's the peace and quiet, with not having to commute. There are so many more hours in the day to use creatively when they don't have to go on travel time.

Yesterday we looked at the SWOT of where we are right now. Some of the realities may have seemed painful, but there were positives, too. Today another dose of realism. Let's look at what we need in dollar terms to live and how we have been using those dollars.

Five years ago, for an experiment, I started recording all our personal expenses as well as income using Quickbooks. I had used it before for business purposes, but this did not paint an accurate picture of us, and our home as a business. So, apart from whatever you currently record for the tax man, (in a separate file) start recording all that you spend, and putting it into categories.

If you have a computer, a very basic accounting program (Money, Quickbooks, Quicken) or a basic spreadsheet program (Excel) will do the job. Go for the cheapest, no frills number if you decide to purchase a program. I liked Quickbooks as I already knew how to set up bank accounts in it. I created a list of accounts (simplified for the purpose of illustration) which looked a bit like this:

Bank Accounts
Oz Bank - $560 opening balance
Credit Card - ($2,500) This is a negative balance
Petty Cash - $340
Home Loan - ($85,000)
Interest Free Account - ($1,500)

Then, these accounts were put into a group account entitled "Cash at Bank"
This automatically totals the positive and negative amounts of money to give a final figure.
You may choose to leave the home loan as a separate account, if the added up number looks too depressing. I liked to do it though, as the "bottom line" was what I wanted to see at a glance.

I then set up all our assets in an asset section. This isn't essential, but it made me feel better, to see that although we owed money, we nearly owned a house worth over $400,000 and we had other assets which added up to quite a bit as well. Superannuation went into the assets register as well, because it could not be accessed at this stage.

Then came the expenses and income. Here is a simplified list - make it as detailed as you like.

Income
Partner's Salary
My craft income
Interest Income
Other Income

Expenses
Compulsory (I liked to sort out the essentials from the non-essential or discretionary)
Insurance
Rates
Telephone
Power
Food
Car expenses
Tax deductible expenses
Personal
Cash
Books
Gifts
Travel
Clothing
Hobbies
Home Maintenance
Wine
Pet Expenses
Children's Expenses (Because we are empty nesters, this wasn't in the compulsory category - your chart might be different if you have a different situation)

Once the basic data was set up, it was easy. Each day, enter any bills paid into the account where you paid them from. It could be a credit card payment online for the power bill, for example. Your partner may have had his or her salary paid into the bank account, so enter that into the account. If you went to the auto teller and drew out cash, transfer the cash from the savings account to the petty cash account. Reconcile the bank accounts at the end of the month to match the bank statements. Keep tabs on the credit card balance daily.

The fun part is seeing where all that cash goes. Each day I look at the contents of my purse and match the petty cash balance in the computer to my "actual cash". I often wonder where it has gone and then I remember, oh yes, I bought a lotto ticket on the way home, or, I spent $15 having coffee with a girlfriend. Believe me, it goes! If you can't work out where that $10 has gone, it will usually be on a snack you have purchased, or grocery top-ups such as milk and papers. Just keep balancing and recording your spending and soon it will become a habit.

After doing this for a couple of years, I found some really interesting trends with money use. I also discovered why most budgets (like diets) don't work! The big bills I used to stress over actually were not where the bulk of our money was going. We far outstripped this spending on non-essential items for the house, the garden, hobbies and take-away food. I was a little ashamed to find that I had spent more in one year on the pampered pets than I had on my own (grown up) child! Of course I didn't count the free board and food and use of the car, but nevertheless it was a wee bit embarrassing!

But the best thing was, for the first time in our lives - I actually knew what it cost us to live in this house, with these two cars, two cats, one adult offspring and more than a few expensive habits! By knowing this, I could then plan for us both to be independent of the paid workforce and start to live the life of our dreams! Homebliss!

Read on tomorrow and I will tell you more......