Organizing for taxes and beyond, Part 2: Painting the broad strokes

In Part 1 of this series, I explained the motivation for cracking out Quicken to get a handle on our family's finances for this year's tax season and beyond.  I began by entering  our primary checking account's transactions for 2010.  Along the way, I created accounts in Quicken for the other financial vehicles we have as they came up in our checking account transactions, but didn't stop to enter the rest of the transactions for these freshly-created accounts.

Once the transactions for our primary checking account were entered, and the balance was reconciled, it's time to start entering the transactions for the other accounts.  If just biting the bullet and getting started in the first place was the ugliest frog on my plate, going through about thirty pages of credit card transactions for last year's charges to our primary credit card has got to be the second-ugliest frog.

Our primary credit card's transactions was a big chunk of work, for sure, but between the checking account and this credit card I can now paint some broad strokes about how we spent our money last year. We did use cash now and then, but our checks and our credit card accounted for the large majority — most –of our cash flow.  We got a clear picture of our big spending weaknesses, the most glaring of which was how much we ate out last year.

Note:  these are broad strokes.  I had a year-end summary of transactions in front of me, which I transferred into Quicken.  This year-end summary has dates, merchants, and amounts.  I didn't track down then whether my purchases at Sheetz were gas, or food.  Our trips to Costco could have been groceries, electronics, books, gifts, or household items, but again I didn't get the receipt out then to check.  Right now purchases from Costco are all “Groceries” even though I know they're not.  Purchases at Sheetz were “Auto:Gas” if the amount was about $20 or more, and “Dining” if the amount was well under $10.  I could have gotten some of these categories wrong.  But for broad strokes, they're approximately correct, which is all you can expect from broad strokes, anyway.

Will I stop at the broad strokes?  No.  I have boxes of receipts that I can match up with the credit card charges and the checks to add some shading and detail to the big swaths of financial color.  I'll need to do this for any numbers that will go on our taxes, because the closest that the IRS gets to “broad strokes” is “rounding to the nearest dollar — but only for amounts that are entered on the tax form.” 😉

So just as a recap, here's what I did to get the broad strokes of our spending for the past year:

• I entered the transactions from the account where we had our biggest cash flow. This was one credit card.  It was convenient to have a year-end summary that had all of the transactions for the previous year, roughly categorized.  If we didn't have that, we could fall back on our monthly statements.
• As I entered them, I tried to get the category of spending roughly correct. A trip to Costco can mean a purchase of a bunch of different kinds of things, but “Groceries” was close enough.  What we bought at Costco were mostly groceries, and that's fine for a first cut.
• I left detailed category splitting for later. Just like I didn't get distracted with entering all of the transactions from other accounts when I was getting started, I didn't hunt for receipts at this point.  Doing that will come later when I can concentrate on it.
• This took a few nights, but doing a few pages each night was manageable. That's one of the benefits of starting a little earlier than the first week of April: there's time to do it right, at a pace that won't bore an ulcer in your stomach.  I didn't have to push myself so hard that I lost concentration and started making a lot of silly mistakes.
• After entering all of the transactions, I made sure the amounts were correct. I only found a half-dozen errors in about one thousand transactions.  I made use of the “cleared” checkbox in Quicken accounts to mark off the amounts I had checked.  I'll use it again when I find the receipts for our transactions.

So now I have well over 90% of our financial transactions in Quicken, with rough allocations to categories.  The next steps are to fill in the transactions for the rest of the accounts, and then work on breaking down the transactions using what receipts we have.