I took on the exercise of dutifully tracking my expenses about a year ago. Before, I would utilize technology, like Mint, to automatically track where my money was going. But, I think I heard a suggestion in several podcasts that it really helps to keep a diary of your spending. And this was definitely true for me, an eye opening experience to say the least.
I decided to do this tracking with an Excel spreadsheet, and gave myself the goal of doing this for 3 months, to get a better handle on my average spending per month in common categories. I actually found the exercise so helpful and insightful that I still do this, about a year later, and plan to continue doing this as I think it really enlightens me and improves my behavior. It is not easy, but I think it helps keep me in line with how I use my money. I have become more mindful now of what I spend on each month, and it makes me pause and think about future purchases now too. Do I really want to add this on my spreadsheet of spending? Will this purchase truly make me happy, or bring me joy, or bring utility into my life? Or can this impulse item wait? Or do I even need to buy this item at all?
I think the problem for me with the automatic tracking before with Mint was that I didn’t feel full ownership for what I was doing. The app or website would categorize things I was spending on. This was helpful to categorize my expenses and see trends. But it didn’t hurt as much as when I had to put the item onto my spreadsheet. I saw that, wow, I spent THAT much on an item on Amazon that I am now not really using much. Ouch.
Other ways to do this besides Excel are to use the apps and automatic tracking websites out there. Or use old fashioned pen and paper, or a pen and a small notebook, for example. For me, I enjoy having my data in a spreadsheet so then I can extrapolate, compare, and analyze the data. (The engineer in me lives on, in spite of my years of medical training.)
And I think what liberated me with using Excel was that I didn’t feel limited. I could see how much I spent on groceries for the month, for example, and I did not get an alert that I was close to my “limit.” In truth, the entire limit is your income for the month, or the cash in your bank account, not some predestined number you picked 2 months ago. It is okay for the spending amounts to move and shift with time and needs. For example, some months with extra entertaining or a shift in our dietary needs will demand higher grocery spending. But then, the next month, the spending can be much less. On AVERAGE, then, the spending category and “budget” actually works out. This, again, I found liberating, and much more useful for me.
Also, after analyzing my spending at the end of the month, I could see what was leftover, and then plan where to put that money. Rather than just leaving it in a checking account, I could then move that cash around for future needs. I could invest it, save it in my emergency account, save it for future travel, or plan to use it in my Fun Account which I’ve nicknamed “I Don’t Know What it Is But I want It”…for those random unforeseen items that come up on your Amazon browsing that just speak to you.
It is also interesting over time to compare my spending this year to spending last year. I hope to keep this exercise going in the years ahead to compile more data, and hopefully see my spending become more in line with what I value. I would want to see spending in some categories go down, while spending in other categories I really enjoy (like hobbies) should hopefully increase.
As I mentioned before, this is not necessarily something you need to do forever. I do enjoy the data, though, and I think it influences my behavior positively, so I plan to keep the exercise going at least for now. But I think the true value in doing this expense tracking is in getting a deeper dive into your finances at least for a short period of time (e.g. 3-6 months) to truly feel out where you are spending. The exercise often surprises you, and sometimes disappoints you. You may not want to admit you spend as much as you do on restaurants, or clothing, or random online purchases. But the numbers don’t lie. And tangibly writing the expenses down, or in my case, typing them into Excel, really helps to gain ownership of how you are spending your money, and can give you insight into your buying habits. And hopefully, with that knowledge, you can change your behavior and spend more wisely in the future.