Plug your cash drains

Do your finances a favour and start tracking and controlling your cash spending.

Let's face facts. Most Canadians don’t track their personal spending because they aren’t required to. There is no government department demanding that we document where all our money goes.

I have made the case many times that you should track what you spend because it’s the only thing that is going to give you the vital information needed to control your spending, get you out of debt and allow you to predict what you’ll spend in retirement.

I know I’m probably preaching to the choir since accountants are the one group that understands this, so let’s assume you track your spending by spreadsheet, Quicken or an online service such as mint.com. There is one key category that you think you’re tracking but you’re not really: that category is cash.

I’m a big believer that what you track tends to improve. That’s simply because you are looking at it. Once you find out how much cash you spent last year, you may be inspired to reduce it in future and thus improve your personal financial situation.

If you are like most people you’re probably surprised by how much you withdraw from the bank. Tracking your spending may tell you your family withdrew $7,000 last year, but it does not tell you where that money went.

Let’s explore how you can gain control over your family’s cash spending.

One way is to keep receipts every time you use cash. But many expenses, such as parking meters and donations to the homeless, don’t come with receipts, so you get an incomplete picture. Here are a few better options.

Reduce your use of cash: This will force you to use either a debit card or a credit card. You’ll then have the vendor’s name on your bank or credit card statements so you’ll know where the money went. It is very easy to go without cash today. The airlines don’t even accept cash anymore — to buy a sandwich for $5, you need to hand over your credit card.

One potential problem with this recommendation is that it is easier to spend more when you use credit because it doesn’t “hurt” as much as handing over your hard-earned cash.

In addition, for people who aren’t good with credit, reducing the use of cash is a bad idea. Don’t tell people who can’t pay off their credit cards not to use cash. The fact they are possibly in high interest debt means they should avoid putting more on their cards at all costs. For these reasons, only fiscally responsible people should consider this strategy.

Monitor your withdrawals: This was suggested to me by an attendee at a recent course I gave in Victoria. He said he had a client who withdraws cash in fixed amounts on certain days. For example, withdraw $200 on Friday for the whole weekend and when your cash runs out so does your entertainment. This is a great way to limit your cash spending.

Set up an imprest petty cash account: You probably have one at the office but what about one at home? Another course attendee swore by this method and had been using it for decades. It may be a bit over the top requiring your employees — sorry, family members — to keep receipts for all cash spent, but I bet it works.

Use a cash-tracking app: If you have a smartphone, tracking your cash spending is as easy as punching in the amount and picking a category each time you use cash. The one I use is called CashTrails, an expense and income tracker for iPhone and iPad. It is very simple to use. You simply open the app and click on the “+” sign to enter the amount you just spent, then you pick a “tag” or category. You set these up yourself and you can create subcategories, if you want. The date is already set at today, or you can change it. You can also enter any free-form note you wish. You can even further allocate each expense to a “group” such as personal or business. The report feature allows you to view entries for any period of time (today, this week, this month or year, etc.), by timeline (each entry by day) and structure (showing each category from largest to smallest amount), as well as average spending by day, week, month and year. You can then export the details to a spreadsheet and email it to yourself for further analysis.

Do your finances a favour and start tracking and controlling your cash spending. For many people this is a category filled with discretionary spending that is an easy target for improvement if you know what’s in it.

About the Author

David Trahair


David Trahair, CPA, CA, is a personal finance author and speaker (www.trahair.com). His latest book is The Procrastinator’s Guide to Retirement.

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