Here is the next of my old Art Calendar articles with lots of updated notes tacked on. This 4th one is about the way I go about tracking my money in order to have a clear sense of where it is coming from and where it’s going to. Now with a couple decades of hindsight I can say this is one of the most powerful tools I have for understanding myself and keeping the finances in good order. It’s a practice I can strongly recommend!
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Where Does All the Money Go?
It seems like you just deposited your check in the bank and already you’re out of money! Where did it all go? This was a question I often asked myself, and still do from time to time. However, these days I can find a very specific answer to it. I thought that this month I’d share with you how and why I track all my income and expenses.
This is another tool I’ve gained from “Your Money or Your Life”, the book I’ve recommended previously. Basically, I’ve been keeping track of every penny that moves through my life for the past several years. Each month I tally up the figures, categorize them into different areas, and evaluate the level of fulfillment I’ve gotten for each expense.
In case you are wondering, yes, I still do this. Looking back it appears I started in January of 2001. While many aspects of it have just become rote habit, I do still glean important data and insights from the practice.
This all sounds like a daunting task. Most people I tell about it just shake their heads thinking I’m a bit too crazy or perhaps overly fussy. In reality this isn’t much work. You probably already do this sort of record keeping to some extent. Don’t you keep a mileage log for business use of your personal vehicle? How about all those receipts for business expenses, surely you’re keeping track of those for tax deductions? What I’m talking about is really much of the same thing, just applied to the rest of your fiscal life.
As with other things I’ve shared from “Your Money or Your Life” you’ll find much better and more thorough explanations in the book, but here’s the basics of how I do this. Since many of my bills, and payments from galleries, come on a monthly basis I use this as the period of time over which I track my money. Every month I get a new scrap of paper, write the month and year on it (such as September 2005), and stuff it in my wallet. Then throughout the month whenever I buy anything I take the pen I always have on me (a good business practice I’ve found) and write down what it was and how much it cost. When I get paid for something I also record this on the same paper, but I usually precede the dollar amount with a “+” so I know it’s income rather than an expense. That doesn’t sound too hard does it? Here’s an example of what this might look like.
Gas 13.10
Food (restaurant) 7.37
Food (Grocery) 15.15
Laundry 7.00
Sold art + 492.50
Electricity 24.00
Phone 23.73
Drill bits 5.25
Found money + .01
I should probably note here that the age of computers, smart phones, and apps has emerged since I began this so long ago. As movements around personal financial management have grown new things have been developed that can be set up and linked to your bank accounts that can then do this tracking for you.
If you don’t know this already, I’m a low tech, hand tool kind of guy, so I still do this with scrap paper and pen just as described. I don’t know any of the new services well enough to recommend one. I’m actually a bit leery of giving a 3rd party access to all my financial data. You might feel differently and want to look into them.
Naturally I tend to make up my own short hand for common items. I don’t actually write down “Food (grocery)” every time, rather I write “Food (groc). I could probably shorten it even more to just “FG” if I wanted. You’ll also notice that I separate the food I get at a restaurant from regular groceries. I actually also put convenience foods, such as costly frozen dinners and things, in their own category. For myself I want to see the different places I’m spending my “food” money in. You many not care and simply lump it all together as “food”. On the other hand, it might seem that your grocery bill is just out of hand and you don’t know why. You might try breaking it down further to “meat”, “produce”, “canned goods”, etc.
I’ve found that through the years I do change the categories I split everything up into. For example I no longer track convenience food separate from regular groceries, but I do still separate out restaurant meals. I will add or subtract categories as my spending habits or income sources change. The point is to make the categories fit your life and provide the overview that helps you most.
You might also notice on my sample list that I have an entry for “Found money” where I listed a penny. Yes, I’m the kind of guy who picks up pennies when I see them. With this money tracking practice it just makes sense to be that precise. I want as accurate a picture of my financial state as I can get. It also feels real good when after a full month of record keeping you compare how much money you should have with how much you actually do have and see they are exactly the same number!
Apparently I’m really bad at this since it is a very rare month when the amount I should have actually meets up exactly with what I do have. These days I don’t stress about it too much unless the difference is significant. I just note the difference and move on.
You may be thinking that this list doesn’t seem to be too useful so far, and you would be correct. What makes this tracking a powerful tool is what happens at the end of the month. This is when you categorize and evaluate the data you’ve collected.
I’m going to take exception with my comment above that the practice as described thus far isn’t too useful. It is true that what I’m going to cover next is the more clearly powerful aspect of it all, however, I’ve come to see the very act of writing down every expense and bit of income as a quiet, but very potent thing. This is also why I feel like the automated tracking programs I mentioned in my updated note above are less helpful than the simple pen and paper. The entire point of this exercise is to develop habits that make you conscious of how money flows through your life. The few moments it takes each time you log in an entry on the scrap of paper are moments when you focus your conscious attention on the money spent or earned. Where you focus your attention is where you will most likely gain greater perception. By physically recording all this data throughout the month I am forced to keep at least a small percentage of my attention and perception directed to my financial affairs, reminding me of my long term goals, holding them present and not letting them drift away forgotten due to neglect. I’ve considered writing a whole blog post just on the power scrap paper can have when used in such a way. I may do that eventually, but I think I’ll leave it at this for now.
The first thing I always do is tally up the money I have on me with what’s in the checking and savings accounts to see just how much I actually do have in total. Then I take my list and add up all the expenses and compare it with all the income to see whether I gained or lost money that month. Ideally you are always gaining, but as artists with sporadic income this is not always the case. Assuming I’ve gained money, I’ll add that to the previous months final figure to see what I should have in cash assets. The amount I should have and the amount I actually do have are generally about the same. If there’s a large discrepancy then I need to hunt down the problem.
My total tally now includes not only what’s on hand in cash, along with the deposits in the bank accounts, but also what I have in my various investments. Deciding how to record the value of the investments may be a bit tricky with some types that are constantly fluctuating, such as the value of stocks for example. With each new type of investment I just pick a way to record a value for my own purposes and stay consistent with that from month to month. The goal is to give me as clear of a picture of where I’m at as possible.
Next, and more importantly, I have some sheets I’ve made up giving me categorical breakdowns for my expenses. I go over my list, add up like expenses, and filling in the sheets. How you make your sheets will vary based on your particular situation. I have major headings such as food, home, utilities, transportation, health, business, entertainment, and of course a miscellaneous category. Each of these will have sub-sections. The transportation heading, for example, is broken down into gas, repairs, maintenance, insurance/registration, and tolls/fees/tickets. I also break down my income into areas so I can see where the money is coming in from. This is especially important if you are working a job or two in addition to what you make with your art.
After I’ve added all my expenses up and put them into their appropriate categories I apply that almost magical figure I explained in a previous article, your real hourly wage. I’ll divide each section by my hourly wage. This will tell me how much of my life I’ve spent that month on each area. Then I consider if I received fulfillment equal to the cost. If I’m satisfied with the expense I mark it with a “0”. If it took too many hours of my life for what it gave me, it gets marked with a “-“ indicating a desire to reduce spending in this area. Sometimes the cost was so little compared to the joy I received. Those get marked with a “+”, meaning I wish to spend more in this category.
Written out this all sounds like an enormous amount of work. In practice it isn’t. When I buy something it takes but a moment to jot it down. The end of the month figuring takes me about an hour to run through. It can actually become kind of exciting to see how you did each month.
These days the end of the month tally probably takes about 20 minutes. My spending has naturally dwindled down to just a few regular categories with various oddball expenses added in each month. It can still be fun to see how I did at the end of a month. I’ll note here as well that the financial tracking programs you can find these days probably can do all this work sorting and tallying for you, but again I find value in the time spent directing my attention to this task. I don’t just want the data. I want to alter my brain to bring it more in line with my values and goals! Making my brain work on the task is part of how this happens.
The benefits of this practice are actually quite powerful. You become very aware of how you are spending your money, which represents the energy of your life. By applying your real hourly wage and considering your level of fulfillment in each area wasteful and habitual spending are clarified. When it’s all laid out in this fashion you can identify where the major expenses are. Maybe you thought you were spending way too much on entertainment activities which give you pleasure, but the numbers show that operating that vehicle is what’s really sucking away your earnings. What you do is quite worrying about the entertainment costs, and thus enjoy them more, and instead see what you can do about that car. Is all the money going into gas? Could you sell it and get something more fuel-efficient? This awareness allows you to see and more easily adjust your spending to be in harmony with your actual desires and goals.
As you do this over time you can see concretely how changes in your life affect your financial picture. If you start working a new job you can see how it alters your spending habits. Do you end up with more or less money as a result? If you move to a new home or to a new town or state you’ll see clearly how this alters your cost of living.
As I’ve stated previously, this is not about budgeting! You don’t say to yourself, “I can only spend $50 on eating out this month,” and then feel deprived as you struggle to achieve this. This is all about awareness. Having real, accurate figures reflecting your personal spending habits over time is a powerful thing. What it reveals may be surprising, perhaps even dismaying, but it is concrete. You get personal growth by finding out what really fulfills you and focus your energy and money there. You improve your financial picture by clearly identifying areas of waste and working to reduce those costs. You will no longer have to wonder, “Where does all the money go?” You will know.
I feel like I should make an end note here that while I’ve added comments throughout about why I feel doing this the old fashioned way with paper and pen is better than using an app or tracking service I would still recommend you use which ever way gets you to actually start tracking your finances. At the end of the day (or month as the case may be) having the data to evaluate is way better than not having it. To repeat what I just said above, with the data you will no longer have to wonder, “Where does all the money go?”
Studio Snippet
The work of making all the sets of chasing tools for my upcoming workshop continues. At this point it has become my primary task each day and seems to be moving along well.
For years I always saves the boxes my packs of gold leaf came in just because they were nifty boxes and seemed like they might come in handy someday. That day arrived when I started the production of multiple sets of tools. They’ve become a very nice way to sort and order the tools as I go through each stage of work.
At this point I have all the basic shaping done. I’m now working on refining the finish on them all. Then it will be the last bits of fine tuning for some of the fussy shapes, and on to hardening, tempering, and the final polish. Hmm…. it sounds like I may still be at this for a while. You may see chasing tools again in the next studio snippet!
I’m happy to have a site where I can again allow comments. (I had to shut them off on my main website because the spam was simply uncontrollable!) So please I encourage you to share thoughts of your own. My general rule about comments though is just to play nice. Differing views are fine, but I’m not interested in engaging in or moderating verbal fights. If I feel things get out of hand, by whatever criteria I decide, I’ll just start blocking or deleting things.