Tracking spending is a cornerstone of progression towards financial independence
How much do you spend in a given week? or month? Do you know, or are you just guesstimating? In any given month I could have dozens of separate expenses, ranging from buying a cup of coffee (Latte Factor evangelists relax, it’s a rare occurrence) to my mortgage payments. With the number and variability in size of all these expenses, it’s hard to have a sense of what you’re actually spending if you’re not actually recording any of it.
Why you should be tracking your spending (at least to begin with)
Have you ever tried to bake a cake for the first time without measuring anything? Just doing it by eye and pouring in ingredients freehand, you may well end up making a cake. But there’s also a good chance you end up with a big sloppy mess. People wouldn’t generally take this approach to baking, and yet it’s the default approach to managing our money. Spend all month, and try to make sure you don’t run out of money before your next payslip. I see people in all income brackets compl
aining how tight money is towards the end of the month, which when you think about is ludicrous for those with average or above average salaries!
How to get started
There are lots of different ways to do this, and there’s no wrong or right way to do it. Personal finance is just that, personal. So here are some of the common ways to do this: take your pick, and see what works. The most important thing is that you start.
- Pen and paper – tried and tested technology several thousand years old! Jot down your expenses in a notebook as you make them, or at the end of each day. It’s quick and easy to implement, and you can add up your weekly or monthly totals to see where everything is going
- Apps – or, pen and paper for the 21st century! I’ve been using some tracking app or another for over six years now, currently Spending Tracker on Android. I track all of my purchases via the app, under categories of my choosing. Apps offer the added benefit of being able to set budgets, compare spending trends monthly or weekly and have online backups.
- Online interfaces – a lot of US personal finance bloggers rave about interfaces like Personal Capital, which automatically pulls transaction information from your bank accounts and categorise them, no deliberate tracking required. For a long time there hasn’t been much in the way of equivalents in the UK, but recently I’ve tried Money Dashboard, a service which offers to do just that.
Now you’re generating data! What to do with it?
Hands up, I’m a data nerd. Give me a nice juicy dataset and I’ll chart the hell out of it! While there are many more modern ways to track spending data, I prefer a good old fashioned Excel sheet. On the last day of each month I record the totals for each spending category in a spreadsheet along with account balances etc. This means that over time I get to know how much I spend on things like bills, groceries, and entertainment, and notice when my spending has started to creep upwards. Once you know where your money is going you can cut back spending in the areas that don’t align with your values!
Do you track your spending? What’s your tool of choice?