FIRE.010 Tracking our spending

Let’s get down to it. How do you know where you stand? How are you doing? How can you possibly know if you’re doing well financially (hint: it’s not your income) or falling behind and not realizing it? What is “behind?” Can you compare yourself to your friends, your co-workers, your family, the articles online? Nope. There is really no direct comparison. You must create your own scorecard. I personally have money “report cards” from my whole adult life.

I started tracking my money in high school. I was not some penny-pinching nerd—though I probably am now. I just noticed how my allowance would always run out before the end of the week (I did not work when I was in school).  See, my parent always had a “budget book” on the counter. It wasn’t for planning a future budget, but actually a spending log from past actions. I would always see how they wrote in their spending at the end of each day. It seemed it only took a minute per day. I never paid much attention to the act of their logging their spending. I definitely never thought about what they did with the book at the end of the month, year, etc. Yet, I did know they could look back to see when they had purchased something and what it costs.

So I guess instinctively I just grabbed a spiral binder and wrote “October” at the top and wrote down what I spent each day, if I spent anything at all. My parents taught me by example. Within a couple weeks, I was able to see how much I spent hanging with friends, eating out, buying stupid items, gas, etc.   Did I mention I did this when I was 17—doing something that NOBODY seems to do. (Side note: this was the 80s, there were no debit cards or online transaction histories, and all my items were cash. It’s so easy now.)

What’s exciting nice about this topic is that it’s never too late to get a handle on your spending. You can start tracking any month. Bonus: the less money you spend, the easier it is to track your spending (who got your money). Yes, I know seeing “$68 at Target” doesn’t tell you what you bought, but it does tell you where it went. If you had unlimited time, then you could break down each receipt into major categories but a detailed/overall idea is extremely valuable.

My tips: Basic: Just create a list of spending for each month, ATM withdrawals, debit card, credit card transactions, and autopay bills. Keep a running total for the month. You could even track from payday to payday. This cannot be a one-month activity because there will be large, surprise bills in your life. Those large bills are part of normal spending patterns in life. They must be part of your cash flow plan.

Intermediate: migrate the basic list into columns for a few categories Fixed/required-mortgage/rent, insurance, utilities. Variable/Semi required-cell, internet, TV, even medical. Variable-food in, eating out, Household, HH Misc, gas, auto maint, entertainment/travel, misc spending. I spend about 1-2 hours each month putting this together. That time has proven so valuable over the past 20+ years.

Advanced: break down each receipt into the categories. I find this is far less valuable if you aren’t spending every penny of income. 100% detail is not required If you’re saving money, then you have a handle on being cash flow positive.

Here are some things we’ve learned:

  • We know where our money goes.
  • We know when we’ve had large expenditures and can use for historical tracking years into the future.
  • We can evaluate any of the large spending items. We can make vehicle ownership decisions based on costs.
  • We can easily tell when we’ve done a little over indulging. And can get back on track.
  • We know our travel expenses by trip.
  • At the beginning of each month, my wife knows if I’m going to be in a good or bummed mood for the next few hours. Not by the amount as much as by the items.
  • Very interestingly, we tend to spend close to the same amount each year, even as income increase. And our personal rate of inflation seems low based on being quite consistent over the past couple decades. Most importantly, that spending amount has been below our income amount.

So, back to my question, where do you stand? The most important part of your financial foundation is your cash flow, your Personal Profit & Loss statement. Cash flow based off (net) income vs expenses to determine your money trajectory. Are you spending less than you bring in and allowing your savings/net worth to grow? Are you falling short each pay period? How much money do you spend on food (in house), on food (eating out), on gas (don’t buy a higher MPG car, just combine trips if you can), on quick visits to Target or Costco? There is no doubt in my mind that you would be shocked at where you money goes. If you want a copy of my intermediate level tracking spreadsheet for any idea, just email me. It’s a simple document that allowed for life-changing decisions, year after year.

Would you go to the gym for an hour once a month if you were told it would drastically help your health? Tracking your spending for one hour a month helps your financial health, which can ease your stress, which can even help your physical health.

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