Savvy Money Habits – Tracking Your Spending
By Kevin Gibbons
Several years ago, I wrote about my then recent purchase of a new (to me) car. It was a 2014 Mustang, 50th Anniversary Edition. As an engineer, one of my favorite features was the continuous, real-time tracking of my gas mileage. By watching the simple chart, I could immediately see how my driving affected my gas mileage, and if my mileage started dropping below my target value, not only could I immediately alter my behavior, but I could see in real time how that change affected my gas mileage.
If you want to control or change your behavior, it is much easier to do if you track your performance. And the quicker you can measure your performance, tying it to your immediate action, the easier it is to modify your behavior appropriately. Just imagine trying to stick to an exercise and diet plan by only weighing yourself once a month! Wouldn’t it be easier for you to control your weight if you weighed yourself more frequently?
It’s the same with personal finance. If you want to control and change your spending, you need to track it. And the more frequently you update your tracking, the better your ability to control and course correct. But it can be daunting to try to track every dollar you spend every day. Following in our spirit of incremental steps, here are some things you can do to start tracking your spending at a manageable pace and then slowly build to more complete tracking.
Start by tracking the spending you want to understand or change. It is true that to have a complete understanding of your spending, you need to track everything, but this can be a challenging endeavor. So, start by only tracking the things you want to change, like dining out or grocery shopping. Once you are in the habit of tracking these items, you can slowly add other spending categories.
Look at your spending at least weekly. This is important! If you only look at your spending once a month, you are stuck always looking at the past. The goal is to monitor your spending real-time so you can course correct while you can still make a difference. If you have a plan to spend $200/month on dining out and you hit that level in the first week of the month, you have time to adjust your behavior for the rest of the month before you end up spending $800!
Automate where it makes sense. There are numerous tracking apps out there, both free and subscription-based. Additionally, many banks and credit cards offer these features. They range in complexity and features. The key is to pick one that you will use. It needs to be simple enough for you to use every week and to have the features that give you the information you need. More features are not always better if they make it too cumbersome to use!
Make it a routine. Set aside a fixed time every week to review your spending. If you are looking at family expenses, do it with your partner (and children if they are old enough to participate). We often recommend 15 minutes Saturday morning over coffee. Once you get used to the process, it does not take very long at all!
Look at the data! Setting up an app to capture your spending and getting notifications is all fine and good, but you need to actually look at and process the information. Every week, you are not only looking at whether or not you hit your spending target; you are checking that you are spending on the things you want to spend on. Using the example of dining out, it isn’t just a question of spending within your target. It also matters that you are getting the value you expect and want out of the experience.
So, start small. Track what you want to understand and give yourself enough time to react to the information. Every improvement happens incrementally.
