How to… Track your spending 101

For new and existing readers, this is my journey as an anonymous Australian blogger progressing from -$20,000 net worth in Nov 2016 to financial independence. Scroll to the bottom of the page and hit subscribe to stay posted!

This COVID-19 lockdown period has shone a light on how a short-term shut down of the economy can have significant impacts on an individual’s financial stability. In Australia, we’ve been in semi-lockdown for ~8 weeks now, with some people being completely financially wiped out in those two months.

Unexpected, short-term economic tremors suddenly exposed the fragility of our personal finances. 

As I’ve observed many friends’ financial situations change dramatically over these past few weeks, I realised that many people don’t have basic financial knowledge. In addition to this, unprecedented government and bank bail outs have highlighted the volume of people living pay cheque to pay cheque.

Because of this, I’m starting a financial 101 series, outlining personal finance basics in layman’s terms – that is, personal finance explained in plain, simple English that is easy to understand and implement in your day to day life. I speak from my own experience, so hopefully you can learn from my successes and failures. Let’s begin.

‘How to… track your spending’ – the why and how in simple terms. 

Why track your expenses? 

I never had any idea where my money went by the end of the month, always felt short of cash but had nothing to show when my bank account had dried up. I only spent small amounts here and so they didn’t seem big enough in amount to end up with nothing in the bank. You may have felt the same as I have, so the ‘why’ is just as important as the ‘how’.

What is money? Money is an exchange of our time and energy: two finite and valuable resources which we can’t get back again.

When we spend money, we are paying other people, and when we save money, we are paying ourselves. What I mean by this is that by spending our hard earned money, first, we are trading our time and energy for an equivalent sum of money, then second, trading the value our energy created (money) to someone else by consuming their product or service.

By saving money, we are trading our energy for money and keeping that value for ourselves. We are holding onto the value that we traded our energy for. By saving, we essentially are ‘paying’ ourselves.

By understanding that our time = money, we can view the products and services we buy in hours of our time.

For example, in a week I work 40 hours and receive $400 in my bank after taxes have been deducted. My real hourly rate is $400/40 = $10 per hour. If I buy a take-away lunch at work for $10, this lunch cost me 1 hour of my time. Likewise, if I go shopping and buy a dress for $40, this dress cost me 4 hours of my time.

By converting products and services we consume into hours of our time, we can start to understand whether the value we receive from consuming these products brings us value and joy.

How to track your expenses- the easy way.

What gets measured gets managed.

I personally dislike any manual work because it is easy for human error to occur. I’m also lazy. I may have every intention to use a spreadsheet to track every dollar from every receipt, but realistically, I will forget to input the expenses in when life gets in the way. And then, I won’t have any accurate recording to uncover where all my money goes and I need to start all over again.

I have been using a free budgeting app, Pocketbook for 7 years now. For US readers or UK readers, an equivalent is Mint. It works by connecting to your bank accounts, and then scraping the accounts for transactions and automatically categorising them into appropriate categories based on the retailer. No spreadsheets, no manual work and very secure.

They will even create pretty graphs for you like the below:

Screen Shot 2020-05-12 at 7.48.41 pm.png

If you want to see the categories I use for group by expenses, have a read of my ‘Net Worth’ blog blog posts where each month I write about how much I spent, which spending categories I spent my money on, my assets, liabilities and net worth. I use Pocketbook to track my expenses, but also sum it up all nicely in a table below for my blog. It’s up to you how to categorise your expenses – the a below is a guide to get you started.

Right click on the image and open in a new tab to enlarge.

Examples of the expense categories that I use are:

  1. Overhead Costs: Costs I MUST pay every month on food, shelter, insurance and utilities
  2. Health: Discretionary spending on health related expenses including gym membership and skincare/beauty/pharmaceuticals
  3. Entertainment: Discretionary spending on dining out, shopping, movies, streaming services such as Netflix and Spotify.
  4. Other: Discretionary spending on education, newspapers, gifts etc.

How frequently should I monitor my expenses?

Every week, I spend 5 minutes quickly reviewing my spending for the previous week in Pocketbook to make sure they are in the right category. The more frequently you review, say weekly, the better, as monitoring your expenses will stay front of mind.

In addition to this weekly review of spending, at the end of every month, I review the total amount that I spent. As I get paid monthly, a monthly review works for me, but a shorter period may work better for you. Most of my expenses are charged monthly and I am paid monthly, so my preference is to record my overall expenses (and income – but we will cover this later) monthly.

I recommend monitoring your expenses consistently for at least a month. It will be eye-opening to see where your money is going, and what type of categories you are spending your money on.

Once you had done this, regardless of whether you spend more or less in some areas than you had expected, don’t be hard on yourself, don’t feel guilty, don’t feel shame or embarrassment. It is what it is and this is a big step forward in the right direction.

You have done incredibly well and should be proud that you’ve taken this first (major) step towards improving your personal finances. This concludes the ‘How to track your expenses 101’ post and is the most important step to master.

Next in my 101 series, I will cover how to create a budget. That is, now we know how much we are spending, we can look at creating a budget to reduce our spending, and eventually save towards an emergency fund.

If you have any comments, feedback or anything to share, I’d love to hear from you. Comment below!

xx Miss Piggy

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