What this article covers
Opher Ganel shows how to figure out exactly what you spent over the past 12 months without combing through a year of transactions: compare account balances a year apart, add your net pay, and subtract what you invested. He then explains how to turn that annual total into a realistic starting budget by applying one month of category tracking to your average monthly spending.
Key Takeaways
You can calculate last year’s total spending from a few statements instead of thousands of transactions
Start with your net bank balances (minus credit card debt) from 13 months ago, add 12 months of net pay, subtract what you sent to investment accounts, then subtract today’s balances and add today’s card debt. In Opher Ganel’s example, that math turns $37,075 of net income into $33,675 of total spending for the year.
Your annual spending divided by 12 gives you a realistic monthly budget baseline
In the example, $33,675 of yearly spending works out to an average of $2,806.25 a month. That number reflects what you actually spent, so it shows quickly whether your spending is in line with your income.
Track one month by category, then apply those percentages to your average spending
One month of category tracking shows how your spending splits up, such as housing at about 20% of the total. Applying each percentage to your 12-month monthly average gives you an initial budget for every category, which you can refine over time with a tracking app.
Article after article on personal finance exhorts you to create a budget and a financial plan. You’re finally (reluctantly) willing to do it. But if you’re gonna do it, you really want to get it done already.
Waiting with that budget for months to track your spending doesn’t cut it. You wish somebody would tell you at least if your spending is in line with your income, without having to go through every line of every statement of every account for the past year!
Well, wish no more. Here’s a quick hack that will tell you exactly how much you spent in the last 12 months by just adding and subtracting a few numbers, and help you create a plausible budget from it.
How Cash Flow Shows What You Really Spent
Money flows, like water. That’s why the term “cash flow” is so apt. If you want to have money to use, you need to put it in reservoirs (accounts), and minimize evaporation and leaks (spending). If you want to know how much evaporated or leaked out (was spent) in the past year, all you need to do is compare reservoir levels (account balances) a year apart, and account for inflows (income) and outflows (investing).
How to Calculate Your Annual Spending in 4 Simple Steps
Before we start, collect the following documents:
- Your bank and credit card statements from 13 months ago
- Your most recent bank and credit card statements
- Your paystubs from the past 12 months
- Your investment account statements from the past 12 months
You have all those in hand? Great. Here’s the simple 4-step process that side-steps having to sum up thousands and thousands of spending transactions:
- Add up the ending balances of your checking and savings accounts from your statements of 13 months ago and subtract what you owed your credit card(s) back then. In the following example, I’ve assumed a checking balance of $990, a savings balance of $740, and a credit card balance of $720, leading to a net balance 13 months ago of $1,010.
- Sum up your net income numbers from the past year’s worth of pay stubs. Here I’ve assumed you’re doing this around January, and that you’re paid monthly. I’ve made up 12 months’ worth of net income numbers between $3000 and $3175, totaling $37,075. Adding to this the $1,010 from above, we reach a $38,085 total of what you would have spent if you currently have nothing in your accounts, owe nothing on your credit card(s), and didn’t set aside a single dollar to investments.
- Since whatever you sent to your investment accounts was by definition not spent, we need to sum that up and subtract it from the $38,085 total above. I’ve assumed this was a set amount of $300 each month, for a total of $3600. Subtracting that, we get a total of $34,485. This would be your total spending if you currently have nothing in your accounts and owe nothing on your credit card(s).
- Finally, every dollar that you have in your accounts now is a dollar you didn’t spend, while every dollar that’s on your credit card balance is a dollar you did spend. That’s why we now need to subtract the former and add the latter from the $34,485 total, reaching a total spending number (for this example) of $33,675.
That’s it. The end result of step 4 is how much you spent over the past year. All it took was collecting some statements, and adding and subtracting some numbers.
Note that for simplicity, I’ve assumed you have only one checking account, one savings account, one credit card, and no loans. If you have more deposit accounts, treat those like we treated the checking and savings accounts above. If you have more credit cards and/or any loans, treat them the same way we treated the single credit card above. If you have more than one job and/or business income sources, treat those income sources the same way we treated the single salary above.
How to Turn Your Annual Spending Into a Monthly Budget
To get a sense of how that average monthly spending splits between different categories, track your spending by category for one month, and calculate the fraction spent on each category. In the following example, housing expenses are $554 for the prior month, which is 20% of the $2792 total.
Then, apply these same percentages to your 12-month average spending. Using our above example, the average monthly spending would be $2806.25 (=$33,675/12). As shown below, if your situation hasn’t changed significantly, you can estimate that your food costs will be about 17% of your average monthly spending of $2806.25, which works out to $480.44. You can use that estimated number as your initial monthly food budget. Similarly, you can budget the other categories by applying their respective percentages to the $2806.25 average total spending.
The Bottom Line: A Quick Estimate to Start Your Budget
The above is a quick and dirty hack, so the result is good enough to get you started with a plausible initial budget. However, I do recommend you start using an app like Quicken, Mint, or any of the many others out there to continuously track your income, expenses, investments, and taxes. That will allow you to tweak and correct your budget with ever more accurate numbers.
What hacks have you found that help you simplify the task of tracking expenses and making a budget?
Frequently Asked Questions
How can I figure out how much I spent last year without tracking every transaction?
Compare your account balances a year apart and account for what flowed in and out. Add your net checking and savings balances from 13 months ago (minus credit card debt) to 12 months of net pay, subtract what you sent to investments, then subtract your current balances and add your current credit card debt. The result is your total spending for the past year.
What documents do I need to calculate my annual spending?
You need your bank and credit card statements from 13 months ago, your most recent bank and credit card statements, your pay stubs from the past 12 months, and your investment account statements from the past 12 months.
How do I account for multiple bank accounts, credit cards, loans or income sources?
Treat every additional deposit account the way the article treats checking and savings, and treat every additional credit card or loan the way it treats the single credit card. Any extra job or business income is added the same way as the single salary in the example.
How do I turn my annual spending into a monthly budget by category?
Divide your annual spending by 12 to get your average monthly spending, then track one month of spending by category to see what share goes to housing, food and so on. Apply those percentages to your monthly average to set an initial budget for each category.
Is this quick budget calculation accurate enough to rely on?
It is a quick and dirty estimate, good enough to get you started with a plausible initial budget. Opher Ganel recommends using a tracking app to follow your income, expenses, investments and taxes over time so you can refine the budget with more accurate numbers.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the author
Contributing Writer, Wealthtender
My career has taken some unexpected turns, from earning a PhD in experimental high-energy physics, to conducting cosmic-ray research in Antarctica, to supporting NASA projects and programs, to running my own consulting business. I also run several other small businesses and help my wife run her Marriage and Family Therapy practice.
Those experiences taught me to question assumptions, think critically, and recognize that real-world decisions of any significance rarely have simple answers that apply to everyone. Today, I bring that perspective to writing about personal finance. Drawing on my analytical background, business experience, and research, I explore financial decisions, challenge conventional wisdom, and help readers understand the tradeoffs that can affect their financial well-being. To complement my own research and experience, I also weave insights from financial professionals into my articles, drawing on their expertise and real-world experience helping clients navigate financial decisions and challenges.
At medium.com/@opher-ganel, you can read more of my articles and subscribe to receive email notifications when new ones come out.