Saturday, December 31, 2011

2011 Spending in Review

Happy New Year everyone.  I thought I'd take a post to look at my expenses for this previous year and use it to help give me a good idea of how much I should be spending in the future.  Also, for those of you still looking to get your first credit card, it may help to see which credit cards I use most often and what returns I get through their cash back programs.

Take a look at the above charts and you can see that Chase takes up the largest proportion of my spending.  Like I mentioned a few months ago though, there was a one time hotel expense with my summer internship which puts a lot of extra weight onto that card.  Take out that expense and it is fairly even with Discover and Capital One.

Looking at the bar chart, Discover is easily the highest yielding card but this is largely affected by how I use my cards.  Discover's normal cash back program outside of the rotating 5% categories yield less than 1% so I never use my Discover unless it is with one of the 5% cash back categories.  I've only made one purchase with my Amazon card this year which gave back 3% since it was a purchase on Amazon and I use my American Express card almost exclusively for groceries which yield 3% as well.  Even though my Capital One card has the lowest yield, I still put a large percentage on my expenses on the card.  This is because I generally default to my Capital One if I can't get a higher yield on any other card such as airfare when transportation is not a 5% cash back category with Discover or Chase.

My ending recommendation looking at this past year is that Discover and Chase are extremely valuable cards to have.  If you do a lot of grocery shopping, I would say that American Express is equally essential.  With these three cards, you should be set for life since this set covers most of your expenses with great cash back programs and no annual fees.

Also, thanks to my meticulous budgeting on one of my iTouch apps, I am able to keep track of my spending over time and which categories take up most of my expenses.  I also get to make some fancy charts like the following.

In this chart you can see that rent and airfare take up more than 50% of my expenses. That is the same rent that took up so much space on my Chase card.  Obviously, when I leave college and have to pay for housing (I don't include housing for my dorm in my expenses because my parents pay for that), rent will take up an even larger portion of my expenses along with utilities, water, and gas.  Food takes up another 25%.  The rest of the categories such as entertainment, bus, technology, and some others are less than 1% so I didn't bother including them.  This chart can help me stay on track if I take a look and see that, for one year, I spend 20% of my expenses are on clothing, I may realize that I have to limit my shopping.  This also lets you check to make sure you are reasonably spending on certain categories.  If entertainment takes up 50% of your overall expenses, something probably needs to change.

This chart shows the proportion of my spending over time.  Ideally, it would be a flat line so that you have as little fluctuation as possible in your spending.  Of course, it should be flatter if I was living on my own.  The huge spike over summer was because I was at my internship and had to pay that large rent expense.  I also have a spike in March due to Spring Break.  Try looking at your expenses overtime and see if you can explain to yourself why the chart looks the way it looks.  That way, you can understand your spending habits better.

My spending habits aren't that interesting.  I spend mostly on necessities aside from maybe going out to eat every once in a while.  Budgeting and managing how you spend your money is the basics of personal finance. The end of the year is a great time to look back to see how what happened and how you should plan for the next year.  These will be the numbers I follow when planning out my budget for next year as well.  I will probably expect to spend around 30% on rent and 20% on airfare and set my limits accordingly.  I can even more closely budget it month by month based on the previous year.  Although it takes some effort to keep up the budget for the entire year, I think it is certainly worth to help better prepare yourself for the future.  Anyway, Happy New Year and good luck with those resolutions (hopefully to better manage personal finances for the upcoming year).

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