Why it is probably okay to round your spending data

I have long recommended tracking expenses so you “know where every penny goes.” It turns out that there’s not much of a good reason to be that precise.

This year I’ve gotten a bit lazier and decided to enter entries to the nearest dollar. If a meal was $51.11, then I’d just enter $51.

After all, how big of a difference might a few cents make?

Does it matter if you round to the nearest dollar?

Or should you just round up?

What happens if you round down?

And what happens if you instead round to the nearest $10 increment?

I tested out my theory using my spending record from my free expense tracking spreadsheet. I was astonished to find that rounding made extremely very little difference.

In fact, this data suggests rounding even to the nearest $10 might be fine.

(Also, you can get the premium spreadsheet which has graphs and comes with an ebook on expense tracking tips)

$1+ (pay a fair price) for the premium spreadsheet

The method

I looked at my spending record for 2012. I summed up the actual spending amount, and then calculated for each entry:

1. Rounding to the nearest dollar (so 1.99–>2.00 and 11.15–>11.00)
2. Rounding up (so 1.99–>2.00 and 11.15–>12.00)
3. Rounding down (so 1.99–>1.00 and 11.15–>11.00)
4. Rounding to the nearest $10 (so 1.99–>0.00 and 11.15–>10.00)

I thought that methods 1, 2, and 3 would be pretty accurate since errors of rounding would cancel out. I was pretty sure that method 4 would be off by at least 5 or 10 percent. I mean there were a lot of entries that would simply get rounded to $0 and that would under-represent my true spending. In fact, rounding to the nearest $10 was surprisingly accurate!

(Fun tip: you can round to the nearest $10 in Excel/Open Office with the function Round(number/10;0)*10. The idea is to divide the number by 10, which shifts the decimal point, and then round it to the nearest whole number. When you multiply by 10 you have what you want)

The results

Methods 1, 2, and 3 were less than 1 percent in error.

Rounding to the nearest $10 was surprisingly accurate: it had an error of just over 1 percent.

So for someone spending $40,000 in a year, for example, and had a spending distribution like mine, this method would be off by $400. That’s a relatively small amount when you want to look at the whole picture (but still significant enough that someone living paycheck to paycheck or in debt should not ignore it).

THE CONCLUSION

You’re best if you write in the exact amounts. You can round to the nearest $10 and that can give you a decent idea, but you probably don’t want to do that.

If you’re entering the data, you might as well be precise. But a little rounding here and there is probably okay.

(Download the free expense tracker, or click below to buy the premium version which has graphs and an ebook on tracking expenses)

$1+ (pay a fair price) for the premium spreadsheet

Why it is probably okay to round your spending data