You NEED to Track Your Spending, Here's How
The one year I didn't track my spending, my net worth decreased by half. Zip. Out the Door. Gone. After that I got serious about it, I started tracking every purchase, and that was one major reason my net worth has increased by 500% in that four year time span. Tracking your spending is, quite simply, the one thing you can do right now that will allow you to take control of your finances, achieve your financial goals, and turn money from a stressor to a source of excitement.
Peter Drucker has a famous quote on the topic, "What gets measured gets managed". Basically, if you don't know the data about any facet of your life, you can't take control of it. Many people never track their spending, in America only 1/3 do, according to a Gallup poll from 2013, and their finances just drift along, usually into the ditch of debt and stress and poverty. If you listen to personal finance podcasts as much as I do, you'll notice that every expert's first piece of advice is for people to track their purchases, and I am no different.
I'm no different because I've seen the power it has. For something that takes me 30 seconds a day, it has a gigantic outsize consequence in terms of my financial life, and even the areas beyond my bank account. My savings rate (the percentage of your take home pay that you keep and build your wealth with) went from NEGATIVE 50% in the year I didn't track it, to saving over 60% of my income each month this year. I don't say that to brag, but to show you the power of tracking your spending, a change of 110% in my savings rate over five years.
There are many great reasons to track your spending, and a lot of them work together to create a strong net worth, absence of debt, and a happy life.
Here are my top five reasons to track your spending:
It helps stop impulse buying. When you see your savings number shrink with every purchase, it makes you think twice about the thing you suddenly HAVE to buy, that you didn't even know about 2 days ago.
You finally know for sure where your money is going. I didn't realize my car was my greatest expense until I looked at the data. This stops your money from just drifting away from you in a fog.
You can prioritize your spending once you know your patterns. If your spending doesn't line up with your values, you can change that. I knew I didn't want to spend as much going out drinking with people, and when I saw how much it was costing me, that really motivated me to cut way back and eventually eliminate it.
It can save marriages. According to Sun Trust bank and the survey they did in 2015, they found that financial stress is the number 1 cause of breakups, with over 35% of relationship problems caused by money disagreements. If you know how much you spend and can talk about it openly with your partner, that communication goes a long way to avoiding those problems. Experts call this having a "money date" and they recommend it once a month. If you have the data, it's a much more productive conversation.
It allows you to make a useful budget. Once you track your spending for a few months, you can know how much you spend in each category (rent, car, groceries, clothes, entertainment, etc). That information lets you craft a realistic budget based on what you've done, and what you want to do, aligning your spending with your financial goals and values.
Well great, you're probably saying, but how do I do this? Do I have to keep a notepad with me at all times and log it in, then add it up in some sort of spreadsheet? I don't have time for that! I have children to raise and mountains to climb and diseases to cure! And to you, my overachieving dear reader, I say, don't even worry about it! I'm here to help show you how.
Here are my top tips on how to successfully track your spending:
Use an app. My two favorite are "Spending Tracker" and "Pocketsmith". "Spending Tracker" is free and great if you're single. It can use any currency and has a little calculator in it. It makes great charts and breaks down your spending into handy categories. It seriously takes me 30 seconds a day to track my spending. "Pocketsmith" is a bit more sophisticated, and keeps track of all your international bank accounts and brokerage accounts and credit cards and expenses all in one place. It's not free, but if you are married and have a bit more complicated financial life, this can be an awesome tool to help keep track of your whole family's finances.
Be specific with your categories. Don't just have a "food" category. Break it down into "Restaurants", "Ordering food", "Groceries", "Work Lunch" etc. Don't just have "clothes", have "work clothes" "son's clothes" "exercise clothes" and so on. This will allow you to really pinpoint where your money is going far more effectively.
Do it in the checkout line. As soon as you pay, take out your phone, put in the expense. It seriously takes 10 seconds, and it's a habit you need to build.
Look at the data at the end of each month and year. Take five minutes to see what you spent money on, and compare it to previous months and years. This is how you will notice trends, both positive and negative, and examine if your spending matches your goals and values.
That's it. Now go Track Your Spending!
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