Why you should track your expenses
SPENDING MINDFULNESS: WHAT YOU CAN MEASURE, YOU CAN MANAGE
Familiarise yourself with the hard facts of your finances and take active steps to eliminate unnecessary or wasteful spending.
Besides the fact that investors aren’t exactly falling over their feet to subscribe to my Inge bunds, government accounts aren’t that different from a household budget. If you spend more than you earn, and use debt to finance the difference, a “language policy” might fool your neighbour, but it won’t bluff the ratings agencies (i.e. your spouse).
Managing your finances in a sensible way starts with knowing exactly what the actual numbers look like: your income, what you really pay for goods and services, and your debt situation.
The McKinsey Maxim – what you can measure, you can manage – is often cited in management circles to emphasise the importance of tracking progress along the way to measure success.
While the mantra has some limitations, it’s a valuable principle – particularly when it comes to financial planning.
Unfortunately, a “measured” approach to finances isn’t something that comes naturally to most people. Carefully logging all spending to my mind isn’t only the money equivalent of a kale chips diet, it also creates the very real possibility that your BMI – Bargain Measurement Index – will be out of whack.
While I’ve had a spreadsheet budget for as long as I can remember, I’ve only once tried to track my spending diligently. It lasted a whopping two days before admin allergies set in.
But tracking one’s spending isn’t meant to be an on-going admin burden – it’s merely an effort to come to terms with how you spend your money and to identify areas for improvement.
The journey starts with some basic mindfulness around spending.
US financial planner and Sketch Guy columnist Carl Richards recommends you write down what you spend in a spiral notebook or on index card for just 30 days as a tool to create awareness, without any judgement or shame about the results.
Following this process, you can identify areas for improvement, figure out how to pay down debt, and once the debt burden lessens, redirect payments towards saving.
A friend tells me he started tracking his expenses using the app Expensify, after realising money was “disappearing” from his bank account. He soon had a reasonable amount of “additional” money available every month, just due to the awareness the exercise created. If you want to save money on the stuff you buy regularly, consciousness around pricing also helps a lot.
The idea with tracked spending is not to fuel an obsession around every cent that leaves your wallet or to become so tight-fisted that you use your friends’ tips to subsidise your restaurant bill, but to familiarise yourself with the hard facts of your finances and to take active steps to eliminate unnecessary or wasteful spending, reduce debt, and start saving and investing towards your goals.
No language policy required.