Wednesday, October 11, 2006

Foray into Forensic Accounting

UPDATED on 10/11/2006 at 11:08 a.m. Added recollection of why there was a spending spike in the August 2005 checking account statement and a statistic on the ratio of checking debits to net income.

In an effort to overcome the stagnation I described in my prior posting, I requested from our bank reprints of monthly statements for our checking and savings accounts going back almost a year and a half. I also obtained online versions of the last year's worth of statements for my wife's credit card. Using this data, I generated some charts to get an idea of how much we spent each month. The picture is not pretty.

The first graph is for our checking account, and it compares total withdrawls with money deposited from our paychecks.

(click for larger image)

The date range on this graph covers the months that my wife has held primary checking account access and bill payment responsibility.

The big gaps in April and May of 2005 don't concern me too much because they were months that we paid for remodeling work on our house. That was a mutually agreed upon expense.

The gap in the August 2005 statement is driven partially by the purchase of a couple pieces of expensive furntiure that my wife wanted: an entertainment center and a computer armoire.

However, the spike in the April 2006 statement is disturbing because I can't recall why this month may have been more expensive than others.

The spike in the November statement can be attributed partially to about $1,800 spent on roof repair and a replacement privacy fence. The latter was covered by our insurance, so that's not a big deal.

This chart tells me two, very important things:

  1. The shortfalls go back a lot farther than February 2006, as my wife claimed in a prior conversation.

  2. They are so large that one cannot blame them solely on me eating out for lunch. Spending on the average of $8/day for 20 work days a month isn't going to add up to thousands of dollars.

When we exclude the big expenditure months prior to November 2005, it turns out that our checking account was seeing withdrawls on the order of 1.48 times that of what we were depositing from paychecks.

The shortfalls in checking were covered by routine transfers from our savings account. I remember doing this a couple times, but well over 80 percent of these transfers were authorized by my wife. During this time, there were two large deposits:

  1. A check I received from the resolution of my late grandmother's estate, just shy of $20,000. It was deposited in June 2005.

  2. Over $2,000 in state and federal income tax refunds, received during the month of March 2006 in the form of direct deposits.

My wife earmarks $150 for every two week pay period to be direct deposited into the savings account, which accounts for the steady stream of deposits.

The other interesting statistic is the ever shrinking percentage of my wife's contribution to the checking account deposits. From April - July 2005, her contribution was about 15 % of the total. From there it becomes a gradual slide from 10 % on down to 3 % for the summer of 2006. This tracks the pullback in the number of hours she's working.

As you can see in the second graphic,

(click to view larger image)

the account balance took a steady dive after the deposit of the $20,000 check.

The sheer size of the gap for each month can be better seen by comparing deposits and withdrawals from 7/31/2005 onward, which isolates off the large deposit in June.

(click to view larger image)

There are several months where the gap is over $1,000.

The large deposit on the 9/30/2006 statement is a transfer from my wife's eBay PayPal account to the savings account. Soon thereafter, it was transferred to checking to pay the balance on a credit card that she uses to purchase items for resale on eBay. She and her best friend have been reselling children's clothes purchased at local consignment shops with the hopes of making a profit on certain high end brand names.

The final graph contains another disturbing picture.

(click to view larger image)

My wife has a credit card in her name only. Within the past couple of weeks, I found out that there was a large balance on it, in the mid $5,000s. I went back through a year's worth of statements and found that her usage really took off in the spring of 2006, just as our savings was starting to get dangerously low.

I've looked at the itemized listings of purchases, and there are several items that I thought she had paid for in cash, including our hotel stay in late May, some tickets for a show we saw on that vacation, and a $376 swing set for the kids. She's also used it to purchase day-to-day items like Starbucks coffees, fuel, and groceries. I suspect she is using this card when she thinks our checking account may be low and she doesn't have a chance to transfer funds from savings to checking.

I haven't gone through the checking account statements to see if there are any really suspicious expenses. I will start with the ones where we had the largest shortfalls.

It's pretty clear we can't afford to live like this, and I need answers as to why she's been letting the red ink flow. The challenge for me in the days to come is this: How can I raise this issue with my wife in a manner that is both healthy and effective? How do I avoid falling into reptile brain mode and hold onto myself?
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