Month: February 2020

My Experience of Tracking Expenses

Our household uses Google SpreadSheet to track our expenses. Feel Free to download it for your own use.

Why Tracking Expenses

When it comes to personal finances, most experts suggest setting up a budget. I once tried to set up a budget for our family, and it was hard because I actually did not know how much we spent each month. Of course,we know we are living within our means. We pay our bills on time, do not have any credit card debt and have more money stashed away in our joint saving account every month. However, if you ask me how much we spend on groceries each month, I simply don’t know!!

For us, tracking expenses seems to be more important than setting a budget.

Why it is a difficult Task

  1. I’m not the only one spending money in the family. Dragging another person to track expenses with me is difficult. I don’t think Mr. G is not willing, it’s simply that he doesn’t see any need for it. After all, we are having extra savings every month.
  2. I’m a bit OCD on properly categorizing expenses. Say, if I go to Costco, some of the purchases are groceries, and some are more discretionary expenses. Should I split up that single Costco charge in my credit card to various categories so I will be more accurate? And if I simply put all of them under grocery, it does not seem to be right. And Plus, if I split the expenses, when I’m matching against the credit card statement, I may need extra mental processing to like the couple lines in the spreadsheet with a single entry in my credit card statement. SO WHAT SHOULD I DO?
  3. There are expenses that only happen yearly or a couple times a year. Should I evenly divide that expense into each month so that I can have a more accurate monthly expense? 

The list can go on and on. When I want to do something, I tend to over analyze the task and OCD on details. Eventually, I will be too overwhelmed, so I will give up.

How I finally make it work

In 2020, I decided to tackle this tracking expenses task. To prevent myself from over complicating the task, I set up the following guidelines.

  1. Keep it simple. 
    • It is okay to categorize the whole Costco trip to grocery as long as that trip mainly contains essential purchases. But if I pick up a big ticket item, i.e., an iPad or a Dyson vacuum, I should further divide up the Costco bill to accurately track our expenses. Yet, if Mr. G just gets a pair of docker pants for work, I will not bother with it.
    • Do not worry about spreading out the bi-annual auto insurance premium, or the annual term life insurance premium. Just record them as the expenses occur. 
  2. Do not judge when you enter your expense. DO NOT YELL to your husband if he spends $200 on cigars. DO NOT BEAT yourself up for spending too much on that dinner. Simply log ALL your expenses first. 
  3. Have a designated box to dump ALL receipts and packing slips. You do not need to put your expenses in everyday as it probably is too much. Process the box when you have time. In my experience, you can easily enter your expenses when you’re watching TV.
  4. Keep the expense report online, i.e., on google sheet, making it easier to access and edit the file as well as sharing it with family members.

For our family, I put all expenses into the following main categories:

  • Food: grocery and dine-out expenses
  • Utilities: cable, internet, cell, water/gas/electricity
  • Home-related: mortgages, HOA fees, Lawn care expenses, cleaning crew (if applicable)
  • Donation/Gift: Charitable contribution, gifts to family/friends, financial support to parents
  • Auto-related: parking, gas, car washes, toll, or car payment (if applicable)
  • Child-related: daycare, preschool, extra curricular, supplies
  • Travel: air tickets, rental cars, hotels …
  • Insurance – auto, health, life, umbrella …
  • Health: contact lenses, doctor visits, eye exams …
  • Tax: something we all wish we can avoid …
  • Investment/Saving: 401K, 529 plan, Traditional/Roth IRA, money stashed away after paying all the expenses and investment.
  • Discretionary: shopping in the mall, entertainment

Then, I sub-categorize each main category. For example, I put groceries, dine-out and alcohol under Food.  You can subdivide a category in a way that is meaningful to your situation. However, try not to go over the top on the sub-categories.

Discretionary is any expense that we can go by without. Of course, someone can argue that dine-out expenses are totally discretionary. For us, we do enjoy dining out occasionally. And if we are out the whole day with little G, making a meal at home is not that possible. So, I won’t put dine-out under the discretionary category.

If you’re interested, you can download my Google Spreadsheet to start tracking your expenses. Here are some brief instructions on how to use it:

  • Overall – Lists all categories and sub-categories that you’re tracking, and it also shows of your monthly and yearly total.
  • Jan to Dec – each sheet is where you want to enter your expenses. 

As you enter your expenses in the Jan to Dec worksheet, the Overall worksheet will also be updated to keep a total for you. This little spreadsheet has been a great help to our family to keep track of our expenses. It also helps us to be more aware of our discretionary spending. I hope you will find my spreadsheet to be useful. If you are somewhat familiar with Excel, you can easily modify the spreadsheet to suit your situation.

Practical Tips if you are OCD like me

  1. FSA/HSA or dependent care FSA:
    • FSA/ dependent care FSA: I do not enter FSA deductions in the expense even thought they are in my pay statement. I simply enter all expenses that are reimbursable from FSA as time goes by. If I have left over money in FSA and that cannot be rolled over to next year, I will enter it as an expense at the end of the year. Maybe, I should have a stupid-loss category??
    • HSA: I use HSA as an investment vehicle, so I enter the HSA deduction in the investment category.
  2. Investment gain/loss: I only record money I move to the brokerage account as Saving-investment. But I choose not to record any realized loss/gain in the expense report. My goal in the expense report is to get an idea on how I spend my income. But of courses, if your investment income is your major income, you should treat it differently than I do.
  3. Reward from credit card:
    • If I redeem points to cash/gift card, I will put that under Income-misc. And as I use the gift card, I will enter my expense accordingly.
    • If I redeem points to air tickets or hotel, I will simply leave it and not enter into the report.
  4. Money from selling on ebay or local consignment store: I will enter that income also as Income-misc.
  5. Gift cards:
    • If I receive the gift card as gift, I will enter that as Income-misc, and then enter the expense paid by the gift card later as other out-of-pocket expenses.
    • If I purchase the gift card myself, I enter the purchase as expense right away, so that the purchase will be accounted for regardless if I remember to use it or not. But when I use the gift card to pay for future purchases, I will not enter it in the report (if I remember …).

What to do with your expense report

It is totally up to you.

For us, we simply want to review the report monthly and clearly see if we are happy with the way we use our income. To be fair, we only have Jan 2020 report so far, so it may be little too early to tell what we will do next.

Why we spend money on umbrella insurance

First of all, what is an umbrella insurance? 

An umbrella insurance policy is extra liability insurance coverage that goes beyond the limits of the insured's homeowners, auto or watercraft insurance. It provides an additional layer of security to those who are at risk of being sued for damages to other people's property or injuries caused to others in an accident. It also protects against libel, vandalism, slander, and invasion of privacy.- Investopedia

But I do not agree with the following … 

The added coverage provided by an umbrella insurance policy is most useful to high net worth individuals who own a lot of assets or very expensive assets and are at significant risk of being sued.

After all, a sizable judgement can claim not only your existing assets, but also your future earnings. 

In order to purchase an umbrella policy, you’re required to have $300K liability coverage in your auto and home insurance. You may think that a $300K settlement is rare, but in fact, it may not be as rare as you think. Here are some examples of umbrella insurance claims. 

Let’s be clear. You do not want to be under uninsured when it comes to personal liability coverage. A serious injury involving significant lost wages and/or lifetime medical care can lead to a catastrophic settlement. 

For our family, we choose to have umbrella coverage for a number of reasons.

#1 Liability coverage Lawsuit seems to be in everyone’s mind when it comes to liability. My friend told me a story. She was babysitting two 5 years old boys in a play date. One of them misfired a toy gun and hit the other’s face. The other boy immediately said, “you’re lucky that you hit my face. If you hit my eyes, I will sue you”. Seriously, that’s a 5 years old!!

#2 Do you drive a car? From the insurance perspective, chances of having claims filed against auto insurance are a lot higher than home insurances. After all, auto vehicles are not a stationary objects and they can be operated at certain speeds, so that totally makes sense. Our umbrella insurance covers all 3 of our cars, our home and our rentals. But if you look closely at the breakdown of the coverage, each additional car increases our premium while our homes and rentals basically are free-riders in the policy. 

#3 Do you have a rental? When we started out having rentals, we would like to set up an LLC to host all of them. I do believe it is a good practice to have an LLC especially if you plan to have multiple rentals under your belt. Due to timings and loan complications, we ended up purchasing the rentals under our own names. Nevertheless, since we do not have the LLC to separate our rentals from our personal assets, we have the umbrella policy to protect ourselves. Is this the best practice? It may not be. But we are comfortable with this level of protection at this moment. After all, an LLC is not going to protect your asset absolutely as the judge can also pierce the veil of LLC during litigation.

#4 Do you have a family depending on you financially? When it comes to settlement over a lawsuit, not only your present asset, your future earning is also at stake. Imagine, you receive a judgement of $750K, and your insurance is maxed out at $250K. You have to cover the remaining $500K, and your future earnings can also be garnished. In this case, your spouse and kids would be the collateral damage in the lawsuit.

#5 Do you have kids? When you have kids, you may be asked to chaperon kids for field trips. Should an unfortunate accident happen, you may be charged with negligence. What if your little one’s BFF accidentally gets injured when coming over for a play date? Yup, most of us can assume that some bruises or even broken arms are parts of normal childhoods. But do the parents of the injured kid think the same way?

#6 Umbrella insurance is actually not that expensive. An umbrella insurance covering two cars and one house with a payout of $1M costs around $150 to $300 annually. For us, we believe it is money well spent.

#7 Legal defense cost When it comes to any sort of lawsuit, the legal fees can be very expensive. Not only that, for most of us who do not have any experience dealing with law firms, finding the right lawyer can also be a daunting task as well. If you have the insurance company liable for the potential settlement, it is simply its best interest to defend you. In addition, if you’re sued, your umbrella policy will cover the defenses cost, regardless if it is your fault or not. On top of that, the defenses fee is in addition to the limit in your liability coverage.

The Final Verdict

Ultimately, it comes down to this final reason for having the umbrella insurance.

#8 Peace of mind We value the peace of mind knowing that we are adequately covered in case we run into unfortunate circumstances. It provides a safety net for our family. For some families, considering the unlikelihood of filing a claim in the umbrella insurance, they may dismiss the idea of having one right away. For us, we always try to prepare for the worst, so the benefits of the umbrella policy outweighs the cost.

And, one last reason which does not apply to us, but apply to a lot of families …

#9 Do you have a dog? If your dog accidentally hurts someone, you may face a lawsuit. Your dog may be really well trained, but accidents happen all the time. And should you take the chance? By the way, this reason is applicable to all kinds of pets that can potentially cause harm to others.