Tracking Expenses: The Simple Habit That Leads To Big Savings
I’ll be the first to admit that tracking your spending is a little weird – especially if you do it how I do it and carry a money diary in your back pocket.
However, it’s one of the best financial habits I’ve adopted. It brought awareness to my spending, and I stopped wasting money on things that weren’t bringing me value.
It led to creating a budget I could stick to, and pretty soon, I was saving 50% or more of my take-home pay.
This simple habit was the game-changer that accelerated my journey to financial independence. In today’s post, I’m going to outline my method for tracking expenses for anyone that wants to get started with this savvy habit.
Why Is Tracking Your Spending So Important?
If you’ve tried to lose weight before, you’ve probably tracked your calories. Certainty over how many calories you consumed each day allowed you to adjust what you ate to hit your weight goal.
Similarly, tracking your spending allows you to stick to a budget so you meet your savings goal.
Being able to save is a crucial step in becoming wealthy. If you don’t keep a tab of your spending, then there’s probably never going to be a surplus left over at the end of the month to invest.
And without dedicating a portion of your current earnings to create passive income for your future self, you’ll always have to work for money.
If you desire a secure and comfortable financial future, then you’ve got to get serious about saving, and that starts with tracking your expenses.
How To Track Your Spending
If you’ve never tracked your spending before, I’m going to suggest that you go old school and use a pen and paper. A small lined notebook that will easily fit in your pocket is ideal as you’re going to have to carry your notebook everywhere you go for three months – and yes, I agree this is weird.
But using a pen and paper will ensure you don’t forget to record small cash purchases. Also, taking out your notebook each time you spend money will make you much more aware of money leaving your possession.
Once you’ve got your notebook, divide the page into four columns as shown below. You’re going to record the date, details of the transaction, account it was paid from, and how much you spent.
Every time you spend money, whip out your notebook and jot down the details (don’t leave it until the end of the day). It doesn’t matter how small the amount or whether it was cash or card. Record everything.
Spend as you usually would and don’t worry about trying to change your behaviour. Awareness is the goal. You can cut back once you set a budget.
At the end of the month, create a spreadsheet to tally all your expenses into categories (housing, food, entertainment, etc).
Continue tracking your spending for at least three months. Naturally, you’re going to have some high and low months, and we want to get an average.
You’ll end up with a spreadsheet resembling the one below:
What you’ve got is a clear picture of where your money is actually going.
This is going to be eye-opening for some people. You might be shocked to find out how much it costs to buy your lunch at work each day, or how much you spend on alcohol.
A Moment For Reflection
Take some time to reflect on your expenses. How much happiness are you getting from how you spend your money? Are you spending it on things that you value?
Bear in mind that your values are unique to you. There is no right or wrong way to spend your money, but how you spend it should make you happy.
I spend £59 a month on gym memberships, which would be an excessive waste of money for some people. But I’m big into health and fitness, and I get a lot of joy from training, so for me, it’s money well spent.
On the other hand, I would baulk at a £20 a week takeaway habit. But that takeaway meal might be someone’s reward for grafting all week, or they may value the convenience of not having to cook and clean up on a Friday night.
It’s all relative.
Really think about how you’re spending your money and the happiness it’s bringing you.
Are there any changes you want to make? Are there things you want/need to stop doing? Does your spending get you closer to your financial goals? Is your spending aligned with your values?
Once you’re conscious of how you use money, the next step is to create a budget that you can easily stick to, which we’ll dive into in a future post.
Wrapping It Up
Tracking your spending is the habit that I advise everyone just starting with personal finance to adopt. It brings clarity on how you spend your money, which allows you to cut back or eliminate unnecessary expenses.
Money is simply a tool to help you get what you want from life. And for it to best serve you, you need to understand how it flows in and out of your life.
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Hi! I'm Jamie
I’m a 30-something money blogger that writes about saving, frugal living, investing and entrepreneurship.
I’m currently working towards FIRE (Financial Independence Retire Early). If you share the same desire for freedom and you’d like to escape the 9 til 5 and spend your days however you want, then you’re in the right place.
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