It is a simple truism that what gets measured is also what gets managed. I can think of few other places where people fail to put this truism to good work beyond their money behaviour. People will track their calories, the amount of gas they put in their cars, the number of times they work out. Yet so few people will track their own money.
This is very perplexing to me. Tracking your money is one of the first steps towards controlling it. You have to know where you money goes.
Lately, I’ve been hearing a lot of talk about “self-care”. Since this is a personal finance blog, I’m going to put my own little twist on this idea. You can feel free to share this bit of wisdom with anyone and everyone.
One of the best ways for you to practice self-care is to know where your money goes. Every single time you spend money, you should know exactly where it is going and why. Anything less is a self-inflicted financial wound.
When I had cable, I loved watching “Til Debt Do Us Part“. (Sadly, the show has since been cancelled.) It was a TV show about couples who turned to a guru to help them figure out their money before money destroyed their relationship. The very first thing the couples had to do was track their money for a month or so before Madam Guru showed up.
Most of the couples had never tracked their money. I always enjoyed the look on their faces when they discovered that they were spending hundreds of dollars each month on bank fees and coffee! It was as though they’d convinced themselves that small amounts didn’t really count when it came to spending their money.
Does this sound familiar to you? Is it possible that you’re one who believes “it’s only a couple of bucks” each time you buy a coffee? Never mind that you buy coffee two or three times a day, Monday to Friday… which works out to over $1000 per year on coffee alone. That amount could fund a nice weekend getaway somewhere.
Relax, relax! I’m not going to tell you not to buy coffee. It’s your money – that means you get to decide how it’s spent. If you would rather spend money on coffee than on something else, that’s your business. Your money, your choice.
And yet… Who among us hasn’t looked in their wallet or bank account and asked: “Where did all my money go?”
I’m here to tell you that getting a solid answer to that question depends on you. Measure you money so that you can manage it. Given how hard you work for your paycheque, it’s in your own best interest to understand why each of your dollars leaves your hands. In other words, you must start keeping track all of your money.
Some people use Personal Capital. Others use Mint. There are probably many other apps for money-tracking that are unknown to me. Myself? I’m relatively old-school. I don’t keep track of my money with lead pencils by candlelight anymore. Instead, I created two personalized spreadsheets. When I spend money, I keep the receipts then I add the amount spent to the appropriate spreadsheet. If I don’t get a receipt, I make a note on my phone of how much money left my wallet. Every nickel is accounted for. This how I know how much it costs me to run my life.
Thanks to the wisdom of TDDUP, I started tracking my spending in 2016. I have a spreadsheet for the cost of running my home where I track my monthly expenses. Those include lawn care, snow removal, Netflix, phone, power, water, car registration, property taxes, insurance premiums and internet. These are the standard bills that have to be paid on a recurrent basis, whether monthly or annually. Some expenses can be eliminated if I choose since they’re luxuries – lawn care & snow removal – while others are fixed. My car and home certainly won’t insure themselves! And I suspect my municipality will get testy if I were to neglect to pay my property taxes.
I have a second spreadsheet for the day-to-day variable expenses of my life. This document tracks my groceries, clothing, medication, gasoline, parking, entertainment, travel, gifts, donations at work, outside food & drinks, taxis, books, etc… Anything that doesn’t go towards the recurring expenses on spreadsheet #1 is recorded on spreadsheet #2. My goal is to spend less than $1,000 each month on these variable expenses. Since 2016, I think I’ve hit my goal twice!
You see, the beauty of my spreadsheets is that they provide me with information and insights into how I spend my money. Up until a few months ago, when I started cooking at home more often, I was spending atleast 1.5X more on food outside my home than I was expending on groceries. I don’t begrudge the money spent on outside-food (as I like to call it). I was hungry. The food was there. I had money – I ate – I wasn’t hungry anymore. The system was satisfactory… until I started pondering on my priorities for my money.
Was spending so much on outside-food getting me closer or further away from my goals? Was I spending the same amount each month on eating out? Would my money go farther if I cooked my own meals more often than not?
Tracking my money helped me to answer these questions. I was able to look at my historical spending patterns to see where I was spending too much. I analyzed which categories needed to be trimmed in order for my spending to align with my personal goals. The information garnered from knowing where my money motivated me to make better spending choices.
I challenge to you to track all of your purchases for a few weeks. Then determine for yourself if your spending choices are helping you to fund the priorities that matter most to you. Know where your money goes.