Tracking your spending can reveal some crucial insights
No one likes the idea of budgeting. It’s no fun having to track everything you spend money on and follow a strict spending limit. Let’s face it: sticking to a budget is about as realistic as keeping a New Year’s resolution.
A budget has a big benefit though: you know exactly where your money is going. When every purchase is set out in black and white, you have to face the reality of how you spend your money. And although this might sound a little cringeworthy it’s actually very empowering.
Is there an alternative to a budget? Yes – I call it a spending tracker.
A spending tracker is a list of all the spending you do. The idea is that you go through all of your spending over a one-year period and add up each expense by category. It’s a detailed account of where your money goes. But it’s not a budget! A budget says you have $x to spend on groceries this month. A spending tracker tells you how much you have been spending each month.
You can’t have a financial plan without knowing your spending. How will you know how much you can put aside into a retirement account or save for your reno if you don’t know how much of your income you have left after paying for everything else? And if you know you need to save a certain amount every month to retire at 60, a spending tracker will show you where you could cut down on spending to make that happen.
The first time I did my spending tracker (which was when I was going through a divorce and really had to face my financial reality), I was shocked by the final tally. It was grounding and helped me make some really important financial decisions.
Knowing how much you spend on an annual basis will make you feel more in control of your money instead of always wondering if you can afford that thing you just bought. Knowing how much you spend by category can also give you insight into how you can spend more mindfully, using your financial resources on things that make you feel good and improve the quality of your life.
Here are five areas of spending that can be eye-opening once you track them.
1.“I forgot I have that app.” Automated purchases like streaming services, apps, or online memberships are hard to keep track of and sometimes we forget about them. Going through your credit card statement will remind you of these forgotten costs such as apps and website memberships you no longer use. And if you forgot you had them, you probably don't need them.
2. “Did I buy that?” Spending mindfully means being fully aware of when you are spending money and on what. When we are out and about, we can get caught up in the moment and spend without really thinking about it. A shirt we don’t need, another nice smelling candle, a kitchen gadget. And then there’s the smaller stuff: lattes, smoothies, bottled water, magazines, books…easy to buy, easy to forget! Reviewing your spending transaction by transaction will bring it all back and perhaps make you more aware of this kind of mindless card-tapping.
3. “I don’t have a choice – I have to pay for that.” Yes, there are many things that we have to pay for – electricity, gas, property taxes – but it’s really important to see exactly how much these things cost. Knowing how much money you need to keep your life going helps you determine how much you need to set aside into an emergency savings account in case you lose your job or are unable to work for a period of time. Also, knowing your "needs" tells you how much you have left for "wants" and for savings.
4. “Kids are expensive – it’s just the way it is!” For sure, our kids need (and want) a lot. They need things. They need activities. They need social engagement. New shoes, a rain coat, a bike, swimming lessons, hockey gear, birthday party gifts, outings with friends…it’s a never-ending parade of costs. It’s easy to lose track of how much we are spending on our children, and it might not all be necessary.
5. “I deserve it”/”You only live once”/”It’s self-care”/”Finally we can do things again.” Every life has some of this kind of fun spending – as it should. For me this includes fresh flowers, outings with my kids, and house-made smoked salmon from my local fish shop. Sometimes, though, we err on the side of too much and it’s actually de-railing our finances. Spending fun money is more fun when you know you can afford it.
Tracking your spending is such an important part of understanding your financial situation. It’s a bit of a tedious process and will take a few hours of your time, but I can almost guarantee that you’ll be glad you did it. You will feel more in control and empowered. You will feel less anxious when you tap your card because you will know that you can afford this purchase and enjoy it to the max. You’ll probably also find some areas of your spending to tidy up, freeing up funds to meet your financial goals. It's well worth the effort!