How to track your spending (and why you should)
Holly Johnson, Get Rich Slowly, 24 Apr 2014
Recently, an old friend emailed me for help with his familyâs financial woes. The confession that followed wasnât pretty, and included tales of student loans, car loans, unrestrained spending, and empty bank accounts. It was all bad news, which I found rather surprising considering their relatively high income. So, of course, I asked about their fixed expenses. What were they?
We emailed back and forth for quite a while, and he gave a few more details of their situation. For example, their house payment was only around $900. Affordable. Car payments and student loans consumed around $450 each month. Not shocking. Then there were the expenses that everyone must contend with--things like groceries, gas, school supplies, and insurance. It was all rather boring.
So, what was the problem? This is a couple who easily pulls in six figures and lives in an incredibly affordable part of the country. Their fixed expenses were relatively low, but they were constantly coming up short on funds. Why? Obviously, something was going on, but they couldnât put their finger on it. And neither could I.
âYou guys should track your spending,â I suggested. âThatâs the only way to see what youâre spending your extra money on.â
He agreed, and I said that I would check back with them in 30 days. So I waited, and waited, and waited. A month later, I emailed to see what they had discovered.
âWe gave up,â he said. âIt was too depressing.â
âDepressing?â I asked. âMore depressing than being broke?â
âThe kids are always needing something,â he said. âAnd we hate staying home on the weekends. We want to go out and have fun.â
âBut youâll never know where your money is really going unless you track it,â I said. âMaybe you can just start over at the beginning of the month.â
âI guess we donât really want to know,â he said.
Itâs hard to argue with that.
Although he didnât give any more details, I think itâs pretty clear what happened. They started tracking their spending and were totally appalled at what they found. Iâve been there. When my husband and I started tracking our spending years ago, we discovered that we were spending over $1,000 on food each month ⌠for two adults and a baby! And that was on top of the other ridiculous ways we were wasting our money. My friend was right; it was depressing.
But, unlike my friend and his family, the severity of our situation actually forced us to change. Tracking our spending made us take a hard look at ourselves and what we really wanted out of life. And we didnât see our failure as a prison sentence; we saw it as a call to action. We used the information we gleaned from tracking our expenses to transform our lives, pay off debt, and completely redesign our future.
But my friend and his family just canât do that right now. The truth is, theyâre not ready yet. It seems like most people need to hit rock bottom before they feel compelled to take drastic action. And, one thing Iâve learned over the years is that you canât make people change. They have to want it. They have to take it for themselves. And until that moment comes, you just have to watch helplessly from the sidelines.
But what about you? If you want to get in touch with the reality of your own situation, tracking your real spending is an excellent way to do just that. Sure, you may think youâre only spending X number of dollars on your hobbies, groceries, and transportation costs, but are you? Track your spending and youâll know for sure. Hereâs how:
Commit to the cause--Before you get started, you need to commit to your own cause. Because if you donât, no one is going to do it for you. Tracking your spending can be an eye-opening experience, but itâs one that wonât work without the full cooperation of your family members. In other words, donât do it halfheartedly. Remember, you have to want it.
Keep receipts--Youâre probably going to hate what Iâm saying, but you really need to keep receipts for all of your purchases for an entire 30-day period. This can be quite a hassle, especially if youâre not used to doing it. However, itâs an essential part of the process. Embrace it.
Track your spending online--In addition to keeping track of all those receipts, youâll also need to keep track of your online spending. This can include bills that are paid online, online shopping, and even credit- and debit-card transactions. The goal is to get a clear picture of all of your spending, so itâs important to include every single transaction you make during the entire 30 days.
Tally everything up--Once youâve gathered your receipts and online transactions in one place, itâs time to tally them up. Start by lumping similar purchases into categories that make sense. Your categories will vary depending on your specific situation; but theyâll probably include things like groceries, restaurants, gas, clothes, medical bills, hobbies, and home maintenance.
Be honest with yourself--If you track your spending for the full 30 days and are shocked by the results, try not to make excuses for your behavior. Remember why you started tracking your expenses in the first place and try to learn something from the experience. If you donât, youâre just resigning yourself to the life youâve been living up to now. Remember where that road leads. Nowhere.
The truth is, tracking your spending is the easy part. Learning that youâve been completely reckless? Now, thatâs hard.
On the other hand, you canât change what you refuse to recognize. You canât tackle a problem that you donât even understand. Tracking your spending will probably be the most painful part of your journey. Likewise, itâs the most important. Because when you see your own spending on paper--in black and white--you can no longer blame the kids or your busy schedule. You canât complain that you âjust need a raise,â or point to high taxes, the government, or anything else as the source of your woes.
We often create our own prison cells, either out of habit or laziness or because we fail to plan. And when we do, itâs easy to blame everyone else and think that escape is impossible. And thatâs why tracking your spending is a crucial piece of the puzzle: It forces you to come face to face with the biggest threat to your financial future. You.
