In May, Mr Money Mustache released his annual spending post for 2016.
These are my favourite posts of his, where he details every dollar his family of three spent for the year. I gain a great deal of inspiration and motivation from them and I’m constantly amazed at the consistency of their spending.
In this years post, MMM states that he has started to lose interest in tracking his spending, because at over ten years into retirement, the spending is all on autopilot and the numbers come out the same year after year.
However, he also adds this:
And we agree! If you’re on this journey to early retirement or financial independence, then tracking your spending is imperative.
Knowledge is Power
Unless you know what you’re spending each month, you can’t make changes to how you spend.
In my experience, most people who track their spending end up surprised about exactly how much they’re spending and what they’re spending it on. You might think you only buy a coffee a couple of times a month, but in actual fact it’s a couple of times a week.
It’s very easy to convince ourselves that we only do things, like discretionary spending, very occasionally. Part of that is just forgetfulness, but part of it is cognitive dissonance (convincing ourselves that we’re not doing it as much as we are).
Tracking your spending will avoid this. Suddenly, you won’t be able to forget any of your spending or convince yourself you don’t buy coffees very often- it’ll be there for you in black and white.
Knowing what you spend is the first step toward changing what you spend.
Knowledge Leads to Change
Armed with the knowledge of what you’re spending each month, you can start to make changes.
Perhaps you’ll discover that you’re spending way too much money on eating out. However, adjusting this may increase your grocery budget a little bit.
You might realise you’re spending too much on entertainment and instead, want to try and find free local events to spend your time at.
The changes you can make are endless. By increasing the efficiency of your spending, your savings rate will increase and you’ll reach your goals much quicker than before. You will be armed with the full knowledge of what you spend your money on and only then can you begin to adjust that.
How to Track
I have tried to track my money manually before. In the beginning, I’d use a small notebook in my pocket. Then, I graduated to an excel spreadsheet and finally an app on my phone. Each time I spent, I was to record what I’d spent so that I could tally it up at the end of the month.
It never lasted.
I’d forgot and pretty soon, my tracking was completely thrown off.
However, last year, we signed up for a Pocketbook account. It’s completely free and works wonderfully. As about 99% of our spending is done on credit cards (that we pay off in full each month), this was an excellent way of doing it. I only had to manually input the occasional cash expenditure.
At the end of each month, we’re able to access our total spending by category. This allows us to calculate our monthly savings rate, which we share with you on the blog.
Another alternative is the ANZ Money Manager. I have used this, but didn’t find it as user friendly as Pocketbook. Your results may, of course, vary.
Whatever method you use, just make sure you track your spending. Without it, you’re unlikely to reach your early retirement or financial goals. It’s a necessary step that will set you on the right path!
Do you track your spending? Do you find it helpful? How do you track it?