How to control your spending

A month into testing out the 22seven money management app as part of the Show Your Money Who’s Boss campaign and I think I have now managed to tame the beast. 

Last Sunday, the day before payday, rather than watching a movie on TV both my husband and I were plugging away at our 22seven profiles planning our spending for the month – I fear we may now be addicted, or just really nerdy.

22seven is a smart application and the artificial intelligence behind it does make creating a budget relatively easy, but you have to train it to your way of thinking. This takes some time and effort, but as I discovered it wasn’t necessarily a bad thing because it certainly forces you to take a good hard look at exactly where your money is going.

The technology uses the experiences of other users to help categorise your spending. For example it will immediately recognises that a transaction with BP is for fuel or Pick n Pay is for groceries. If, however, you have used a store it is not familiar with it may make some assumptions. For example a transfer I made into an individual’s bank account came up as Travel and Holidays (her name was probably similar to a travel agency) so I had to re-categorise. 

If the software is unable to allocate the funds it marks them as ‘uncategorised’. Going over three months’ worth of bank statements I was surprised at how often I had no idea what I had spent my money on, which goes to the whole point of using a budgeting app – knowing where your money is going each month. 

Although you have to put in a bit of effort initially, once you have categorised an expense, the software automatically updates all those expenses and remembers them for future categorisation.

I spent about half an hour per day for about a week to go through all my expenses to ensure they were categorised correctly. I now I logon once a week for about 10 minutes, review my expenses and make any necessary changes. Yes, I am afraid managing your money, like managing your body, does take time and effort.

The tool I starting using this month was the Spending Plan – hence the Sunday evening update. I found this particularly useful as a freelancer as I was able to input my expected income for the month and then compare to my expected expenses. I have a couple of birthdays this month to budget for and a weekend away, so using the Spending Plan was really helpful to work out what I could actually afford and to stay within my income.

In order to tailor the app to meet my specific needs there were a few things I had to figure out along the way, so hopefully my experience can provide a short-cut for you:

1. Start your budget on payday: No-one gets paid on the 1st of each month so go into the Settings and change the dates for your monthly report to start on pay-day.
2. Create a household account: You can create a household budget by linking both partners to a single profile. You can still have your own separate profile with just your accounts but you can have a second profile for the household as long as you use a different email address. Although both of you will share the 22seven login, you don’t have to share each other’s banking details as you can each input them individually.
3. Use the Transfer category to prevent double accounting: When you are transferring money between your accounts you may not want it to reflect as an Income or Expense in which case you can select Transfer. For example, I have linked my credit card to my profile so each transaction shows as a debit, but then when I pay my card in full at the end of the month it also shows this as a debit - so it looked as if I was spending twice the amount. By changing the main category to Transfer it does not allocate the transaction as credit or debit but a neutral transaction.
4. Making provision for tax: As a freelancer I pay provisional tax. At the beginning of each month I transfer my tax obligation to a savings account and then twice a year transfer a lump sum back into my cheque account to settle my tax bill. This messed with my budget so now I allocate the monthly transfer to my savings account as a tax expense, but when I transfer the lump sum I categorise this as a Transfer.
5. Don’t over analyse: Initially there is the temptation to try and correctly categorise every transaction into the smallest possible detail but it eventually gets frustrating especially if you keep changing your mind. For one colleague this attention to detail was driving her crazy and she was tempted just to stop the whole exercise. If, for example, a shop at Clicks is usually toiletries and baby food, just allocate it to the Groceries category. The main aim of the exercise is to know how much you are spending and finding areas of waste you can cut back on.

My suggestion to 22seven has been to create a main business category, this would help me separate my business expenses from personal expenses and provide a wider application for self-employed individuals. It would also help those employees who have expense accounts. Hopefully 22seven will develop this category in the near future.