Only by tracking every purchase can you hope to ever control your spending
The one year I decided not to track my spending, my net worth decreased by half. After that, I got serious about it and started tracking every purchase – a habit I’ve kept up for four years. This is one of the major reasons my net worth has increased by 500 per cent in that period. 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 into a source of excitement.
There is a famous quote from US management guru Peter Drucker: “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 never track their spending. In America, for example, only a third do, according to a Gallup poll from 2013, and their finances just drift along.
My advice is no different. I have seen the power tracking spending has. For something that takes me 30 seconds a day, it has a gigantic consequences for my financial life. My savings rate went from taking a 50 per cent hit in the year I didn’t track it, to saving more than 60 per cent of my income each month this year. Here are my five top tips:
It stops impulse buying
When you see your savings goal shrink with every purchase, it makes you think twice about the thing you think you have to buy.
I didn’t realise my car was my greatest expense until I looked at the data. Once you know how you spend your money, you can change your behaviour. I knew I didn’t want to spend as much going out at night, and when I saw how much it was costing me, I was motivated me to cut back. It saves marriages
According to a 2015 survey from Sun Trust bank, financial stress is the No 1 cause of break-ups, with more than 35 per cent 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 any problems. Experts recommend it once a month. If you have the data, it’s a much more productive conversation.
It helps you make a budget
Now you know how much you spend in each category (rent, transport, groceries, clothes, entertainment, etc), that information lets you craft a realistic budget to align your spending with your goals and values.
This all sounds great on paper, but how do you actually monitor your spending? It’s actually quite simple.
Use an app
My two favourite are Spending Tracker and Pocketsmith. Spending Tracker is free and great if you’re single. You can use any currency and it has a little calculator in it. It also makes great charts and breaks down your spending into handy categories.
Pocketsmith is a little more sophisticated, and tracks of your international bank accounts, brokerage accounts and credit cards and expenses in one place.
It’s not free, but if you have a more complicated financial life, then this could be just the tool for you.
Be specific
Don’t just have a food category. Break it down into restaurants, ordering food, groceries, work, lunch and so o.
Update at the checkout
As soon as you pay, take out your phone and put in the expense. Analyse the data every month. Take five minutes to review what you spent on. then compare it to previous months and years. This is how you notice trends, both positive and negative.
I have seen the power tracking spending has. For somthing that takes 30 seconds, it has gigantic consequences
Dubai schoolteacher Zach Holz (@HappiestTeach) documents his journey towards financial independence on his personal finance blog The Happiest Teacher