Tracking your spending is a foundational personal finance habit. It creates a solid base from which you can improve other parts of your personal finances. Without that strong based you’ll find that money always seems to disappear between the cracks. This makes it very hard to get ahead. Every month you’ll find yourself wondering where all the money goes.
Building a solid financial base of financial habits is the only way to improve your finances.
Tracking your spending isn’t sexy, but it’s super important. Like any tall building this is part of the foundation that sits below the surface, unloved and unappreciated, while the beautiful architecture above the surface gets all the attention and praise. The foundation is always there, carrying the weight of the building, keeping it from collapse.
Tracking your spending can be easy, and it can even be fun, you just need to find the right method for you.
Tracking your spending has a big impact. Once you know where your money goes you can decide if it aligns with your values and goals. When you start tracking your spending you’ll almost certainly find some waste. There is always some wasted spending that doesn’t align with your values and goals. But, it’s hard to see it until you see your spending summarized over a few weeks or months.
Tracking your spending lets you change your spending habits slowly over time. You can focus on one budget category for a few months and slowly see the impact of the changes your making. Without tracking your spending it’s hard to see if your efforts are having an impact.
In this post I’ll share six ways to track your spending. Try them out. Find the one that works for you.
Money is important. No doubt about it. Without money you couldn’t buy food, or buy clothes, or put a roof over your head. Obviously, we all need some money to survive. But have you ever stopped to think about why money is important to you?
Once those basic survival needs are taken care of, things become a little more interesting; suddenly the importance of money changes from person to person.
Have you ever been amazed by what other people spend their extra money on? How much they spend on certain activities, hobbies, toys, or vacations?
Or perhaps you’ve been questioned on your spending decisions by a friend, a co-worker, or maybe even a partner?!?
It’s easy to forget that we all value things differently and that we make spending choices accordingly.
Why money is important to me could be very different from why money is important to you. Even between partners there can be confusion and frustration about why money is important.
At the end of the post I’ll share with you my financial values. You’ll have the opportunity to find out what your financial values are too!
Habits. They’re both good and bad.
Habits are tough because for the most part they occur subconsciously. You’re not really in control. You may not even realize it’s a habit. You think you’re making the decision but really it’s just habit driving your actions.
When you have a habit, good or bad, you’ve been wired through repetition and rewards to make the same actions over and over. Truthfully you have very little control.
Habits form when a behaviour is repeated often enough to become automatic. There are typically three phases to creating a habit, the cue, the routine, and the reward.
For example, a regular exercise routine is an extremely beneficial habit. Regular exercise can greatly improve your overall health and wellbeing. Getting 75 minutes of exercise each week can extend your lifespan by as much as 4.5 years! (Not to mention you feel so much better!)
Unfortunately, habits can work against you too. Bad habits can form just as easily as good habits.
Bad habits usually form during stressful times, during big life changes, and when you’re bored.
Bad spending habits are super easy to form because there is an immediate reward for spending money. Bad spending habits are also easily formed because there are spending cues all over the place in the form of advertisements.
Bad spending habits can be really detrimental to your financial health. Even a few bad spending habits can cost you $50-$100 per week. Over the course of your lifetime those habits can cost you hundreds of thousands of dollars.
If you think you may have some bad spending habits I’ve got a challenge for you!
Try doing a “no spend challenge” this month. For the next 30 days you shouldn’t spend any money at all. NOTHING!
Doing a no spend month is a great way to reset your spending habits.
Setting a goal can have amazing results.
Even just thinking about your goals will give you a higher chance of achieving them. Writing down your goals will improve your chances again. Revisit your goals regularly and your chances get even better!
The chance of hitting your goals will improve by 80% when you write them down and create a plan.
I love goals, especially financial goals.
One of our previous financial goals was to pay off our mortgage early. We did this in exactly five years! At the end of the post I’ll share with you our original plan and how it actually went down (because things never go according to plan).
There was a great personal finance question from a user on Reddit the other day that basically asked if it was even worth saving money in your 20s. The user asked r/PersonalFinanceCanada “is it even worth saving money while you’re young?”
This is a GREAT question. The quick answer is YES!
There were few good responses that covered the three main reasons why saving now, even on a lower income, is still the right thing to do.
Let’s review the three reasons why saving while you’re young is so important…
Banks are biased. That’s obvious. Banks are public companies in the business of making money and therefore are biased towards activities that produce a profit. This isn’t necessarily a bad thing but when making personal finance decisions it’s good to keep this top of mind.
This bias is especially apparent when banks advertise their mutual funds. They use a few different forms of bias to make their products look extra appealing.
Everyone has probably seen a mutual fund advertisement. It’s the one with the line that keeps growing towards the sky. It usually says how $10,000 invested 10 years ago could have grown into $xxx,xxx today.
There are a couple of problems with this advertisement.