Running the Numbers

What does it mean to “run the numbers”? This is an expression that accountants and other financial professionals use to mean “look at how much it costs” to do a certain thing.

For example, when you buy or lease a car, you determine what the total cost of the car is and then look at how much the monthly payment will be based on your down payment, the length of time you will be making payments and of course the interest rate. You “run the numbers” to see what you can afford.

This same concept can be (and should be) applied to all of your living expenses. Most people know how much money they have coming in – they can add up their pay cheques, their government cheques, and any other money they receive in a month. What many people don’t seem to know is how much money they have going out – what they are spending.

It is not complicated to figure out how much you are spending, but it does take some effort. The simplest approach to determining how much you spend is to write down every dollar that you spend. Start by doing this for a day, then a week, then a month, perhaps two. The longer the period of time you keep track of the better the numbers you have will be.

This means that you have to write down when you spend cash, when you use your debit card, when you write a cheque or use a credit card. If there are two (or more people) paying the bills then everyone needs to keep track of what they are doing. If you’re a husband and wife and only the wife writes things down then you’ll only have half the picture. Better than nothing, but not really useful in the long run.

Once you’ve recorded all of your expenses for a month you have to sit down and sort them out – which ones are for food, for rent, for your car or other travel, etc. It doesn’t matter how you group things together as long as you know what items make up each number. (In other words, if you decide to lump all of your rent and utilities together as one item then every month you need to do the same thing. You can’t include the cable bill this month and then put it someplace else next month).

Once you have all of your expenses sorted out you can decide whether on not that’s how you want to spend your money. In a lot of cases (things like rent) you don’t have a lot of choice, but for other items (such as groceries, or entertainment, coffee breaks, etc) you can decide how much you are willing able to spend.

This is “running the numbers” for your living expenses. If you write down the money coming in at the top of the page, list the money going out beneath it, you’ll have a monthly budget. By subtracting the money going out from the money coming in you can determine how much money you have left over to save, or pay down debt, or to buy the things that you need from time to time.

If your budget is in the negative (the money going out is larger than the money coming in) then you need to look at ways to either increase the money coming in – get a second job, rent a room, whatever – or you need to look at ways to reduce the money going out – cut back on your expenses.

The people that we speak to most frequently have determined that the item causing them the most difficulty every month is the money going out to deal with their debts. For many Canadians, this can be the largest part of their budget – exceeding the amount they pay for their rent or mortgage.

If after you’ve run the numbers you determine that you need to do something about your debt, that’s when you should consider speaking to a financial professional to review your debt management options.

Running the numbers gets you started – once you have a budget you can look at different debt management solutions to deal with your debts to see which one fits your budget and is right for you.