Everyone Track your spending habitsspends money, it’s integrated into every part of living in today’s modern society. It seems however, that only a handful of people know exactly how much money they have spent and where their hard earned pay packet disappears each week.

Something I have discovered is that one of the best ways to save money is to understand where your money is actually going. To do this, you need to start actively tracking your spending habits.

The little things that add up

Prior to my wife and I deciding to buy our house, we diligently tracked every aspect of our spending for 3 months. This enabled us to get an informed idea of exactly how much we could afford as mortgage repayments. The most interesting thing we found after completing this exercise was how much money was being spent on “the little things”.

The below image is a screen capture of 1 week in the life of our spending habits – (we used Google Documents spreadsheet as we could both edit it, even at the same time).
Note: We included the expected loan repayments that we would need to pay. This was our way to ensure we didn’t forget how much money we would be forfeiting into the loan each week.

(Click Image to enlarge)

As you can see, we weren’t exactly being very frugal with out money.
$1413 per week is obviously far more than is required to live comfortably. The obvious items that could be removed are:

  • Beer
  • Sunnies
  • Bunnings (Not sure what I did at Bunning but I’ll assume it was likely nonessential)
  • Movie
  • Ice Cream + choc topping
  • Budgie stuff
  • Doughnuts
  • 2 Kegs (Must have been a big weekend)
  • Paint brushes
  • Xmas star + extension cord
  • Adams party

Individually none of the items above seems overly expensive, but when combined it works out to a total of $357.80.  I’ll assume I decided to have a bit of a splurge that week however, I’m sure I could have cut down on that list by at least half, knowing what I know now about saving money.

 

Learning from my experience

I have only shown you 1 week of my initial 3 months of tracking my spending, but I hope you have gained an appreciation of the level of commitment which I feel is necessary in understanding where your weekly pay packet is going and also the longer term goal of setting yourself up for financial independence.

My top tip – Be honest with yourself when logging all expenses, the reason for this is that the data you get out is only as good as the data you put in and if you don’t put in all the little things, you won’t have a true understanding of where the spending leakage is occurring. So if you buy a 30 cent lollipop from the counter as you leave the grocery store, make sure you include it in your spending. It might not seem like much but it can add up over time, particularly if you make a habit of it.

Another thing I found useful was going through the tracking exercise with my wife,  I knew that so long as I was expecting her to update the spreadsheet meticulous she would be expecting the same from me. This meant that we continued tracking our spending habits for much longer than I would have if I was going it alone. Obviously the benefit of tracking our spending habits for longer is that it produces a much more statistically significant result than if I had only monitored a single week of spending.

If you have a partner or a friend which you can buddy up with and go on the savings journey together, I feel you will not only find it much easier but also a far more rewarding experience as you will have someone to share in the difficulties but also the triumphs along the way.

Finally, ensure that you leave some cash each week for yourself. It’s all well and good to try and save all the time, but everyone needs a reward for being good every now and then. I personally find that things I have saved for are generally more treasured than those items which have been bought as a part of a crazed spending spree. I also find that when I am tracking my spending, I am less likely to buy things which I don’t need as there will be a permanent record of it, almost like a black mark on my personal savings record.

 

How should I track my spending habits?

There are a number of ways available to monitor expenses, I personally wouldn’t recommend using a spreadsheet like I did, the reason for this is that there are far better alternatives available today then there was when I first started trying to manage my personal finances.

My preference is to go for a smart phone app, the reason for this is that when you go to spend money you will likely have your phone with you, and its really simple to enter the purchase details immediately. This has the advantage of preventing an accidental receipt collection or becoming someone who requires a prodigious memory just to track spending.

There are plenty of free apps available which can be used to track spending habits. One I have heard good reports about is Expense Manager

I hope you have gained some insight into how I went about tracking my spending habits from this article, and how you might be able to do the same thing.

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Thanks Glen