One of the key assignments in my work as a money coach is for clients to track their spending.

Here’s a question for you:

What percentage of your money could you account for, if asked, off the top of your head?

Most of us think we have a fairly solid sense of our spending.

When clients actually go through the exercise of *tracking* their spending, though, they inevitably get a surprise or two.

Common underestimates include:

• groceries
• weekend getaways (average estimate: $200 or so.   average actual: $400 or so)
• kids’ birthday parties

So, today I’ll be asking Dee and Chris to track their spending for a month.  It should take no more than 5 minutes a day, and pays off big time.  For one thing, it eliminates that uncomfortable question “where did my money go?”.   More importantly, it gives valuable data that can be used for decision making down the road.

In Dee and Chris’s case, this will enable them to discover what income they realistically need to support their lifestyle.  It will also enable them to discover if their is some spending that could be minimized so the money can reduce their debt instead. They seem to be fairly careful shoppers, so possibly the info about income needed will be more important.

I’ll be sending them a simple excel spreadsheet template that I use personally (if you’d like a copy, e-mail me at Nancy at your money by design dot com).  Another fantastic option is pennyminder – free online software that accomplishes the same thing (Canada’s answer to Mint).

You can follow Dee’s progress this week on cbc’s website.

Readers: do you or have you ever tracked your spending?  How did it help you?

Photo Credit: Life in LDN

Happy New Year!

Photo Credit: GarrettC (who is himself out of debt. kudos!)

I thought I’d kick things off in 2009 with a day-by-day case study.   Dee and her husband Chris were selected by CBC Radio 1 to work with me this week – some of you may have heard the initial interview on the Early Edition this morning.

This week, Dee and Chris get an intensive money workout!

They own their own home, have investment portfolios … and $60K of debt.  The debt came about in the past couple years, due mostly to  a series of life circumstances: Chris returned to school and is now starting a new career, Dee got laid off and started her own business and on top of that, they received a $12K levy on their home.

Each day this week, I will be giving Dee and Chris an assignment.  They will then blog their responses on the cbc website, so follow along there!

Dee and Chris, like many of my clients, are uncomfortable about their debt but somewhat unclear about the details of their financial life.  This lack of clarity can exacerbate feeling disempowered and anxious.  Of course, we make more effective, grounded decisions as we increase our sense of control, and as we have confidence The first three assignments are going to focus on obtaining data.  Knowledge is power!

Here is assignment #1:

Ground yourselves in your net worth.

To find out your net worth, simply

1.  Add your respective investment portfolios’ values

2. Add the value of your home  (you may wish to review MLS for comparable home prices, or simply use last year’s property tax assessment value).

then

3. Subtract from the above your outstanding mortgage

4. Subtract your debt.

Note: in your assets, you may also include items of solid value other than your home and investments.  For example, in my own assets I include my Heintzman Piano.

It’s important that your decisions about your debt are not driven by panic!  Instead, it should be dealt with in light of your overall financial picture.  Knowing your net worth is the starting point.

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UPDATE:  Dee’s Response:
You know what they say…admitting you have a problem is the first step to recovery.  Hi, my name is Dee and I have debt.

My first assignment from money coach Nancy Zimmerman was to calculate my net worth.

Knowledge IS power, so it only makes sense to take a good hard look at what money we’ve got and where it’s been going, right?  Why then, did I feel a combination of anxiety, nausea and excitement when faced with this assignment?  The anticipation of being confronted with the truth was terrifying.  I guess I expected things were going to be bleak.  Turns out, we’re in better shape than I thought.   PHEW!
I found this exercise enlightening as now we have a better idea of what exactly we’re dealing with.

I have to admit, it is also of little consolation knowing I am like thousands of other Canadians carrying a heavy debt load.  It has only been in the last two years that our family circumstances (school, childcare, career changes, special assessment,etc.) caused us to go into debt.  It has been stressful and uncomfortable ever since.

As I journey down the road of debt recovery to financial freedom I am looking forward to seeing what my money coach has in store for us next.