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When we first came to Vermont neither of us had a job, and it took a while to get established. So, lean times. I decided I’d better figure out where the money was going so we could budget effectively. What I did was to color code our spending to see what was going on. Here’s how to go about it. Think adult coloring with purpose.
How to color code spending.
First step is to divide the types of spending you do into expense groups such as utilities, food and household, medical, transportation, and housing. Whatever groups fit your current situation. Then get highlighters in assorted colors and assign each group a color.
If you have fewer highlighters than groups, blend the colors. Yellow and blue make green, pink and blue make purple, that sort of thing. And don’t forget no-color as a group identifier.
Next, get a check register where you write your expenditures in. I actually used it to record checks but I realize that’s old-fashioned. It would also work if you just record receipts where the money went. If you’d rather, get your checking account statement printed out and use the highlighters to classify each debit.
Wait, you have credit card bills. Do you pay your utilities on one? Transportation costs on another, such as fill-ups at the pump or oil changes? That makes color coding expenses easier. If transportation is blue and your VISA is used for car expenses, then your VISA bill is blue. Same with utilities. If they’re green and they all go on the MasterCard then you’re good to go.
Alternatively you can decide after looking at your VISA bill that half was for utilities and half for travel and write them in accordingly.
How about cash? What do you do with it most of the time? If you use cash for coffees at the drive-thru every morning, you know that cash withdrawals are liable to be a personal expense and color them accordingly.
What have I done?
You have now actually done what big companies have done for years to track expenses. You’ve made cost centers, or categories of spending. You’re duplicating by hand a fancy accounting system that runs on bookkeeping software. (If you have that, you don’t need this, of course.)
Now it’s easy to find out how much money you use on transportation each month. Or food, entertainment, housing or any other class of spending. You can see this by adding up the amounts of money in all the green stripes, then all the pink ones, and so on, till you have accounted for all the color codes. Then if you feel like getting nerdy, you can make your own pie chart. Wow.
Or you can just chart out your monthly figures and then take an average over a few months. If you have large seasonal swings, like you might with electric bills, you might want to chart out a year and see when those expenses go up and down.
Color codes and income.
As you go along you might want to apply your color codes to certain sources of income. Suppose you drive a lot for work and get reimbursed for mileage and tolls. It would make sense to compare your mileage check to your total transportation costs. Wouldn’t it be handy if your mileage check paid for your transportation for you? It might not get it all but you can see how much it helps. You might color code the deposit of the mileage check amount and run transportation mostly off it, depending on your situation.
You could dedicate other income for various expenditures. It makes sense if you have a side hustle to track your business expenses and income in the same color. It will help you find things at tax time and keep you straight as you go through the year.
For many of the colors, you’ll just be tracking spending and drawing from your main income source to pay them. And that’s okay. Who needs a separate income stream for groceries, after all? You still have the advantage of being able to see where your income is going.
Budgeting with color codes.
Now that you have the data at your disposal about how you spend your money, you can set limits that are realistic. I found that, feeding and caring for two humans and two cats, I averaged $70 a week in grocery store purchases. I could see that electricity costs increased 20% in winter here. And when I got my job I could see exactly where the money was going without having to duplicate effort outside my main money management instrument, the checkbook.
Some of my costs were annual. I found it peculiar that when we bought our house the bank did not set up an escrow account for insurance and property tax. I had to save for that myself. When we got central heat installed, I had to save to pay a contract to get heating oil at a frozen price for the winter. Otherwise I’d be at the mercy of the market.
So I made a group color for saving up for house and car insurance, property tax and heat, each of which cost in the thousands and came due at different times. This way I could easily see I was on track to pay these costs when I needed to.
I enjoyed the comments I got when I’d write a check in a store. The colors in my check register often drew attention. Not that I was coloring then. That had to wait till I got home. But it worked for me for many years to help set up a budget, keep it running in spite of changes, and making sure we never did without the necessities.
Details on making a budget with your color-coded spending data here.
How do you track your spending?