We’ve kicked off our No-Spend January, and I’ve been thinking a lot about the last time we did a no spend month and what we learned from it.
There was no bigger takeaway than the fact of how very, very important it is for people to track expenses in addition to tracking your personal balance sheet and keeping up with your account balances. If you struggle with money, tracking expenses and budgeting can improve your financial picture by helping you live within (or even below) your means.
But what if you’re doing okay? If you live comfortably with minimal debt and you’re building nice savings for retirement and other future expenses?
You won’t be able to do it as successfully if you aren’t tracking expenses.
I know. Until October 2015, when we launched our last no-spend month, I wasn’t tracking expenses, and I’ve been kicking myself for neglecting that little task ever since.
Why Tracking Expenses Is Key
For years, I put money management on auto-pilot, but I didn’t realize it. If you’d asked me, I would have said that I was careful with money. After all, I saved money on a regular basis, both in retirement accounts and other investments, There was always extra money in my checking account. I even balanced my checkbook religiously.
So if you asked me how much I spent on my cable bill each month, I could tell you. And I could probably have given you a rough idea of how much I was spending on gas because I almost always used my debit card to purchase it.
Cash spending was a mystery, though. I’d get cash back from the grocery store, and it would look like a grocery expense. If I received a reimbursement for some work expense, it just got cashed and spent rather than tracked. And these were not infrequent occurrences or inconsequential sums.
Until October 2015 I had no idea what I spent on takeout, coffee, or any other impulse buys I bought with cash unless I needed to track the expense for tax purposes. And I had no way to figure it out because I tracked account balances rather than tracking expenses as well.
I lived within my means. I didn’t accumulate too much debt. My net worth went up and I was building wealth.
But I wasted so many opportunities to do more with my money. Not tracking led to impulsive spending, and impulsive spending meant fewer choices, both then and now.
Since we started to track expenses, my small family lives comfortably on less than I spent as a single woman. We can do that because now we can see the leaks.
Once We Tracked
I suspected going into our 2015 no-spend month that we had some questionable spending habits. I was new to the personal finance community, and ideas about what you could do with frugality excited me.
One of my goals for the challenge was to start tracking expenses. I wanted to know how much we were saving with our frugal month, and the only way to figure that out was to compare what we spent in during the month to what we spent before and after.
It was a great time to set the habit. We had way fewer transactions to record than usual, which made the process easier.
By the time I went back and started entering my numbers from the previous month, I could quickly zoom in on some problems. For instance, I was spending far more on groceries than I thought, even accounting for the cash back I regularly got. Those extra trips during the week added 25-30% more in expenses than I had thought. I quickly realized that the trips to our local warehouse clubs didn’t actually reduce any other grocery spending, either.
Plus, I realized that I had completely forgotten to budget for things like birthday presents. Necessary, but better put as its own category rather than lumped into “entertainment” or “miscellaneous.”
We may not have spent more than we had, but there were places we could cut to pay for other priorities,
How We Track Expenses
A lot of bloggers use apps to track expenses. Not us.
While I think apps are cool, we do things the semi-old-fashioned way. On a spreadsheet.
So pretty much every morning, I enter any expenses from the previous day. Cash, debit or credit card, it all goes on the same sheet, along with where it was spent, what we bought (roughly), budget category, and who initiated the purchase. If i don’t have the exact amount on hand, I’ll put a rough placeholder number until I can get hold of the receipt or the statement. It’s usually within a few dollars and helps keep me honest.
About once a week I’ll scrounge through my purse and ask Jon to check his wallet for any missing receipts. We go through our account statements monthly to make sure all our expenses are reflected on our tracking sheet. We also adjust all those estimated numbers to reflect actual numbers.
Once I’m pretty sure that all the expenses for the month are in, I’ll run a pivot table report to get my expenses for the month and year to date so that i can compare them to our budget. Then I paste the monthly data into a month to month comparison sheet.
Why We Don’t Use an Expense-Tracking App
But why, you may ask, don’t you use one of those expense-tracking apps? Wouldn’t that be easier?
We have a couple a couple of reasons for being spreadsheet nerds. The first is that my money is not just my money, it’s our money. And Jon is not comfortable with the idea of tracking financial numbers in the cloud more than necessary.
I know, you can go look at wonderful posts at Bayalis is the Answer that explains perfectly why you don’t need to worry about the security of Personal Capital. And lots of reliable bloggers are happy to tell us about their great experiences with it and other expense-tracking apps. But we all compromise with our spouses on some things, and my spouse doesn’t trust keeping everything in one web-accessible place.
(Even our personal balance spreadsheets are kept on a flash drive rather than on our hard drive.)
The other, though, is probably more important. If you use an app to track expenses, it’s really easy to 1) ignore your cash expenses, since a lot of them pull data directly from your bank account transactions and b) ignore the reports.
Just like I used to ignore all the expense reports Quicken used to generate for me when I used it to balance my checkbook. Manual entries and manual reports help me pay a lot more attention to our spending, spending trends, and how our finances work.
How You Should Track Expenses
But that’s how I work and it may not be what works best for you.
If you want to sign up for Personal Capital, Mint, or You Need a Budget, go ahead. If automation leads to better results, then that’s what you should do. Just make sure you’re accounting for any expenses you aren’t automatically tracking.
If you’re a fellow spreadsheet nerd, you’re my people. You can find a bunch of good spreadsheet templates to track your expenses online. I could even send you mine, if you want to shoot me an email.
I think setting up your own spreadsheet (with your own reports) will do you more good than using someone else’s template, however. You can customize it any way you want and get it to show the information that’s important to you.
You don’t have to use a computer at all to track your finances. Centsibly Rich has a terrific post on setting up a spending journal on plain old paper.
In other words, do what works for you. But do it. Track your spending down to the penny for just a couple of months and see where your money goes.
Then you can think about whether your money really goes where you want it to go. Or is some of it going somewhere else instead?
Why You Need to Track Expenses, Even if You’re Doing Okay
That’s the key, folks, That’s why you need to track your expenses even when you know you’re building wealth.
Because if you don’t, some of your money might not be doing what you want it to do. And you’ll need to ask yourself “Am I okay with that?”
I’m not sure if I’d understood what I was doing, I would have been okay with where my money went. I wasted so much money that I could have saved or redirected. Instead of paying down my mortgage faster, I spent money on impulse buys and the latte factor. (2 Lattes a day at $5 each after tip, times 5. I had a serious coffee issue!) I got the full match on my 401(k), but I could have saved more by being more mindful with my spending.
When you don’t track expenses, you don’t see the embarrassing truths of a $700 a month grocery habit or a $10 ebook a week habit. And I didn’t see it then because I didn’t understand where my money went. Now I have no excuse for letting mindless spending take away our ability to do the things we’d rather prioritize.
Make the most of your money by really knowing where it goes. If it’s all adding value to your life, great. But if not, tracking expenses gives you the power to achieve your best financial future.
Do you track spending? If not, why not? If so, how do you do it and why? What’s your best advice for those who haven’t tracked expenses before?
*Part of Financially Savvy Saturdays on brokeGIRLrich. *