The Importance of Tracking Your Spending

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?

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10 Responses to The Importance of Tracking Your Spending

  1. Pia says:

    I track mine. I tried the notebook way – nope. Tried the manual input in an app way – also nope. Tried the spreadsheet way – major nope. But I actually think a lot of these ‘nopes’ were due to me not being committed to the cause. I was doing it because ‘mum told me so’ or ‘It would be good to do but I don’t really know why.’ type of reasons so it wasn’t enough motivation.

    It wasn’t till I actually wanted to do this for myself that my tracking actually worked. I use a very personalised spreadsheet now. It’s handy having a husband who is an excel wiz. I can just demand, haha.

    I have even tried YNAB – hated it. I looked into pocketbook and moneybrilliant too, but reading too much whirlpool forums have made me very wary about handing over my bank details even if it’s in a read-only mode. (I started my acorns experiment before I realised how uncomfortable I was with the idea, so too late to back out now since I want to see this experiment through).

    Anyways! Tracking has been wonderful. It has been absolutely fascinating seeing where all my money goes every month. I update my spreadsheet every night if there’s been any spending that day. And spend hours analysing the data and comparing it from month to month. It’s really enabled me to up my savings rate too. It turns finance into a game for me and that’s been a real game-changer in the way I see things and has been a tremendous help to my journey.

    • Hi Pia, thanks for stopping by. I enjoyed reading about the journey you’ve come on- sounds like we have had similar experiences. I’m so glad you’ve found a method that works for you. It is so eye opening. I always thought I was well aware of where my money goes but even now when we have our spending quite reined in, I still sometimes get a surprise at the end of the month when I’m reviewing (“we spent HOW much on eating out?) But with this knowledge, we’re able to make improvements.

  2. Amy says:

    I use a combination of spreadsheet and Mint to track our spending. We use our credit cards for almost all transactions and they show up in Mint automatically. I do have to manually enter any transaction having to do with our checking account, but I don’t mind. We had that linked to Mint in the past, but I was moving money around quite a lot and I really didn’t need Mint to record all of that, so I turned it off. I found your blog through another blog–“Enough Time to…”

    • Hi Amy, so glad you’ve come over from ETT, we’re thrilled to have you.

      Mint generally doesn’t work for Australian bank accounts, but I have heard great things about it. Pocketbook (which we use), it pretty similar. I don’t think it works for non-Australian bank accounts. I think if Mint brought out an Australian version, it would be very popular here.

      Glad to hear you track your spending and have found it helpful. I have found it truly eye opening and don’t think I will ever not track.

  3. Mrs. ETT says:

    We track our spending and budget with YNAB. They’ve recently done a massive upgrade to the app, so it has full functionality that matches the website. It’s not free, though. Our biggest surprise was food, and it’s been one of the easiest to cut back on. I also didn’t realise quite how expensive cars were to own and in.

    What is that incredible flower? Is it as big as it looks? Also, I love the carved wood and the perspective in that photograph. Perhaps unsurprisingly, I like patterns.

  4. Ozstache says:

    I’ve been using Quicken variants and spreadsheets to track finances for the last 30 years and, despite the need to manually enter data, love knowing where we stand financially. It took my wife a few years to get with the inputting program but now she loves it and is always asking me to open up Quicken to update it with purchases and see how we are tracking against budget. A comfortable FIRE is proof in the pudding!

  5. “Knowing what you spend is the first step toward changing what you spend.” – This is so true. I wish more people will believe this. My attitude towards money changed after I created my first spend tracker. That was life changing. I thought I was doing so well because I was saving money, I didn’t know I was wasting so much and that I could save more. I still use spreadsheets (and enjoy updating them) and haven’t tried any apps, so far.

    • I have a spreadsheet for the savings rate, but in terms of tracking dollars, Pocketbook is for me. I actually don’t use their app as I found it very clunky, I use their website. It’s truly amazing what you can change once you know where the dollars are going!

  6. Miss Balance says:

    I’m probably the only one who doesn’t do this (don’t shoot me).

    I skim off my savings when I get paid and then have the rest free to spend on whatever I want. It is tracked only at a high level and not down to minute categories.

    If they ever make a system that can track my cash spending for me and make a pretty graph then I’ll be on board 😉

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