In a nutshell: you can get better insight into what you’re really spending on things by combining a few related categories.
Reduce your category count
By bundling a few categories together into one, you can get a different (and often more useful, more accurate) picture of your money.
For example, right now, you probably have car-related expenses going into 3 or 4 different categories. There may be any combination of fuel, insurance, repayments on your vehicle loan, annual services and occasional repairs. But you may only see the real cost of your car when you put all of those expenses together.
We have a friend… she thought that, because her car was nearly paid off, she was in a great position. But the car was a high-end luxury gas-guzzler that was expensive to insure, service and repair. When she put all her car-related expenses together in one category, she realised she wasn’t doing quite as well as she thought. She sold the car, bought a smaller, newer one, and even though she now has a loan to repay, all the other stuff is cheaper, so she’s actually spending less on her car each month.
You can reduce and combine your categories by creating new ones. For example, create one called something like “My car”, and put every car-related expense there instead of into four or five different categories. In the same way, you could create a category called “Home” and put your home loan repayments, electricity bills, rates and other garden and household services all together to see how much your house really costs you.
It’s just a different lens to look through, but it could change the way you decide to use your money.
Photo by: Stephanie Sicore, the perfect first whittling project via Flickr, CC BY 2.0.