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The One Money Management Tip That Changed Our Lives
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
When we decided at the end of 2012 that it was time to get our financial life together, we really had no idea of where to start.
On a whim, we started searching the Net with terms like “How to get out of debt” and discovered the immensely helpful world of personal finance blogs. One piece of advice we saw over and over was, “You need to start tracking your spending.”
Up until that point, we’d always been afraid of budgeting and spend tracking. Due to perspectives we learned about money in our childhoods, my husband and I realized we were subconsciously afraid of not having enough. Therefore, when we would start a budget or spend tracking system, guilt would set in immediately when we’d spend on something that wasn’t a necessity and we’d stop budgeting altogether.
As we began to assess our very unhealthy financial situation at the end of 2012, we realized that we had to overcome this fear of budgeting if we really wanted to dump our debt. And the one key that helped us most when it came to taking control of our money was this:
Track all Spending
It sounds simple enough, but what we learned about spend tracking truly has changed our financial lives exponentially. Spend tracking has helped us to:
- Be sure we are staying in line with our planned budget
- Have a clear, one-minute view of where our money is going
- Keep us accountable for whether or not we’re spending in line with our values and goals
Why Budgeting Without Spend Tracking Didn’t Work for Us
When we tried to set a budget without tracking our spending, we continually fell into money management failure. As we looked over our non-tracking expenditures, we found that we spent:
- 50% more on groceries than we had budgeted for
- 100%+ more on entertainment expenses that we thought we were spending
- Much more money than we had coming in
Hence the tens of thousands in credit card debt that we are now digging out of. Spend tracking and looking at your total monthly expenditures as a whole – both during and at the end of each month – helps ensure you are truly spending your money on what you want to spend it on.
For instance, when I look at our entertainment expenses on the 15th of the month and see that we’ve already reached our spending limit, I can say “Ok, guys, no more entertainment costs this month. We’ll be doing free fun stuff only for the next two weeks.”
And the family is okay with that because we’ve established our goals together and we know that keeping within our entertainment and other budgets means we stay on track to reach our financial goals.
How to Overcome Fears About Spend Tracking
If, like we did, you have some reservations about tracking all of your spending, never fear. Here are some quick tips that will help you overcome your fears and reap the benefits of a solid spend tracking system:
- Choose to spend-track for just one month. That way there’s no pressure to do it forever and you’ll be able to assess the benefits without the pressure of having to stick with the program.
- Make your spend tracking system user-friendly. We use a simple Excel spreadsheet. There are also great programs through companies like Mint and Personal Capital that can help you track your spending.
- Write down your expenditures at the end of each day. Recording your expenditures daily will keep the task simple and help you avoid missing anything.
- Remember that you’re doing this for the greater good. It’s easy to get caught up into guilt over spending habits when you start spend tracking. Remind yourself that spend tracking is not a punishment, but a way of helping you to achieve your financial goals faster.
Learning to live off of a real-life budget and to track your daily spending can drastically accelerate achievement of your financial goals. Make a commitment to try it for just 30 days, and see if it helps you to save more money toward your financial dreams.
How about you all? Do you track your spending? If so, how has it changed your financial picture?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/59937401@N07/5474825330
About the Author J. Irwin
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Tracking my expenditure has been very illuminating. I learned that I spend a lot of money on food outside the house. A couple days of free spending can totally blow the budget. I have a pretty good handle on cell/internet/utilities, they are pretty low for my area. I don’t feel like I buy a lot of crap…but some how end up spending a massive amount each month. I spend more money on Holidays than I thought.
Tracking your expenses is just like being on a diet. You have to count those calories, and if you don’t write it down you’ll forget the little bites and extra cookies you had. Sometimes its not pretty, but its the best way to stay in control. I can’t deny it, I have to own it, when I track it.
Illuminating is the perfect word!! “A couple of days of free spending can totally blow the budget.” So true!! Love how you said you don’t feel like you buy a lot of crap but somehow end up spending a massive amount each month. That was us totally!!! Great comment!
Laurie @thefrugalfarmer recently posted…You’re Not Just Paying off Debt, You’re Building Wealth
I started using Personal Capital a few months ago and it’s been a huge help for me. With all my and my SO’s credit cards’ transactions showing in one place, I can easily tell what spending is unnecessary and what are the big ticket items.
I started to do a budget but I haven’t been too strict about it but still by watching the spending my finance situation has evolved to a much better state than a year ago.
Charlie recently posted…Weekly Digest in Personal Finance Blogosphere
Charlie, that’s terrific!!! It’s amazing how much finances can improve when we start paying attention to where our money is going, isn’t it? 🙂
Laurie @thefrugalfarmer recently posted…You’re Not Just Paying off Debt, You’re Building Wealth
Tracking your spending is a total waste of time. The world is constantly changing and so are your expenditures. New and better things are always in our future. It is impossible to know what they will be. Any tracking system will be different from the last one and each very short lived. What is the point of knowing where your money went. The past is gone and you can never get it back. The future is unpredictable and cannot be planned. Add to that all of the unknowns about our lives such as illness, loss of job, changes in inflation, unexpected replacement costs, market fluctuation, new technological changes, children costs that change as they get older, and dozens more. Budgeting or tracking spending is not an effective method. There are infinite things you want to buy or do, and we want them all. There is no way to prevent human emotions and desires from taking over our lives, especially with all of the advertising and marketing that tempts us repeatedly and relentlessly. Why feel guilty or feel like a failure if you know you will not be able to stay on budget or even track where all your money went. Do you really want to track the money spent on Coca Cola, Hershey bars, ice cream, coffee at Starbucks, and all the other impulse buying?
There is only one way to manage your personal financial life. One that works every single time without fail:
Step 1. Total your gross income each year
Step 2. Calculate 15% of your gross income each year
Step 3. Set up an automatic withdraw of 15% from your paycheck or checking account of the paycheck
Step 4. Send automatic withdrawal to a separate wealth coordination checking account (WCA).
Step 5. You have no check writing privileges from the WCA so there is no temptation to use it.
Step 6. You select a combination of automatic withdrawals from your WCA to other savings vehicles
Step 7. Withdrawals are spread among a whole life policy, matched 401(k) and growth index fund.
Step 8, Spend the rest of your 85% gross pay any way you want without worry or concern.
Step 9. Enjoy life now on the road to financial success knowing that your future is well in hand.
The spread between the savings vehicles is reviewed each year as your financial situation changes but a good balance is 5% in each. Saving your money first and forced before spending it is the key to financial success. You are now profiting from your labor. Your spending is now irrelevant and need not be tracked. Living on 85% of your gross income is your real lifestyles amount, not 100% of gross income. Trying to save what is left over after tracking expenditures or budgeting is a road to financial disaster.
I can’t speak for everyone, Robert, but the main reason we got into financial trouble is because we had no idea where our money was going each month. We assumed we spent very little on non-necessities, but in reality the non-necessities were eating up a large part of our budget. The only way we were able to discover this was by tracking our spending. From there, we set a budget so that we could be sure we were spending an acceptable amount of money (according to our goals) in fluid areas such as entertainment, groceries, etc. By doing this, we cut our grocery bill in half and cut our entertainment expenses by 75%, which allowed us to funnel MUCH more of our hard-earned cash toward savings and debt reduction. “There is no way to prevent human emotions and desires from taking over our lives.” Sure there is: It’s called self-discipline and self-education. Spend-tracking and budgeting are not about inducing a guilt trip – they’re about helping people to take control of their money and therefore control of their future. And a good budgeting plan includes an allotted amount toward savings each month.
Laurie @thefrugalfarmer recently posted…You’re Not Just Paying off Debt, You’re Building Wealth
Growing up poor, it seems more than a challenge to track our spending. Spending has been what makes us feel rich. It makes me feel rich when I can purchase something with no consequences in my mind. The problem is that those consequences come back to haunt my family at the end of the month when the credit card statement comes.
I’ve worked hard to track without cheating but there is always the CHEAT syndrome that comes back to haunt me. Tracking is hard to do mentally but it is essential to getting out of debt and staying out of debt. The CHEAT bug always seems to come back when you are not paying attention to your expenses.
Tissue King recently posted…Do You Really Need TV Service?
I struggled with the exact same thing, TK! There is something about spending that makes you feel like you’re not poor anymore. Through major mindset shifts, I’ve learned to avoid the cheat syndrome altogether, and I’m confident you can too!