Some time in mid-November, I decided it was about time I understood how much money I have, rather than just guessing. I remembered a blogger I read suggesting two pieces of software, one which he used and cost money, the other which was more complicated and free. Naturally I chose the free one, GNUCash. It's crazy watching finances properly for the first time.
If you're anything like me, until now at least, you think of yourself as earning the amount that hits your bank account each month, and you think of yourself as having spent what disappears between that time and next time. The crude indicator of being cashflow positive or negative tended to be whether the balance after the pay went in was getting higher or lower month after month. This is far from being a bad way of doing it, but there are so much better ways.
In the world of tracking finance, you track everything on gross, that magic number of the left before all the bad stuff, but in your mind you'll still think of yourself as earning just the net pay, the smaller number.
The upshot of this is you're seeing that you've spent over £1600 by the 15th of the month when you take home a little over £1400. It scares the shit out of you.
The reality of course is the £1600 includes over £600 in income tax and national insurance, not to mention over £100 to the student loan company - a repayment plan that seems to move far more slowly than the size of the payments would suggest. It always seems about 5 years from being paid off.
So, far from having spent hundreds over what I earn this month, i've actually saved a few hundred (also deducted from gross, pension or otherwise) and still have something to spare with most major expenses for the month including Christmas gifts taken care of.
Even with all this data, it still feels somehow hard to tell just how cashflow positive you are. The report I look at as I write this would suggest it's close, but if you factor in the savings, it's not close at all and i'm doing fine. Not money for a house deposit within a year fine, but moving in the right direction.
I'm new to this, so no doubt it gets clearer, and hopefully the need to accurately track the smallest cash units will wane, as I think it takes too much time to be worth it. I even have my change jar listed as a current asset, and I counted it as exactly £20.01.
One thing the increased visibility does is piss you off. If you think you're taxed about 20% of your income because that's the income tax rate after your allowance, you're sorely mistaken. Try dividing income tax + national insurance + council tax over your gross pay. You're at over 25% in real terms and that's before you factor in the £10 a month TV tax that you can't really opt of of and of course the 17.5% VAT (come Jan 1st) on damn near everything you buy . You're easily at or past 30% by now, but wait there's more. Do you drive? You know that fuel duty is over 50%, yes?
When people say that tax accounts for nearly half of a person's income, don't dismiss them.. They're getting close. Consider whether you get a measure of value for that money compared to the value you get for the money you actually spend as you choose. It's all YOUR money that YOU earned. The company that employs you REALLY DOES pay YOU that gross income - it isn't a trick. The tax you pay is part of your spending, and a lot of it's not well spent!
So, what else is new?
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