Back to Basics - Why I Track My Spending and Redid My Budget
I had a conversation with my brother and his wife about how I track my spending and I thought it was interesting that they didn't do it. They think they have a good estimation of how much they spend and they're fine with it. I don't agree with their methods so I told them why I track my spending. I don't think they bought it, but hey - they didn't build Rome in one day! I know my brother and sister-in-law are responsible people. I know they are doing well with their finances. They are certainly more well-off than I am, but I do wonder if it's a mistake to not do the simple task.
I think the practice of tracking spending is simple, but it's not always easy. Some people might think it's time consuming and others might think they've already got a great idea of how much they spend so it's unnecessary to do it. For me, it's a simple task, but it's also about being more intentional with the money I'm spending and the money I've set for my budget. You'll recall that I recently decided to make a formal budget at the beginning of this year. The act of tracking my expenses has made me more conscious of my spending and when I've run out of money in any particular category. This is especially important for the "fun" stuff in the budget - meaning the Restaurants, Clothing, and Travel Fund categories. It goes back to NEEDS vs WANTS. We NEED to eat and we NEED clothing, but we often just WANT to go out to restaurants instead of cooking and WANT to buy new clothes instead of being content with what we've already got. With that being said, it's important to me that I keep within my budget on these categories. To do that consistently, I need to be diligent about tracking my spending. It's that simple!
As an aside - I must confess that it was incredibly dumb of me to put $80 for my Grocery budget in my March blog post. I look back now and laugh because it was only possible because my mom often would cook meals since she lives with me. That being said, $80 a month ($20 per week) is no doubt do-able, but it's incredibly difficult and unrealistic. I've done a lot better with my budget since then! I doubled my grocery budget and shifted a few other things around. I'd love to update you on it some time in the future.
Now back to the main topic! So what about the argument that tracking your spending takes too much time? Well, that's where apps like Mint come in! Though the app is free, it comes at a "cost" - namely, the information you provide to the app, and the ads you see in the app. After all, it's how they make their money without having to actually sell you anything. It tracks your spending for you if you decide to link your bank account(s) to the app. That way, all you need to do is manually input any cash transactions you've had. If it makes sense to you, you should consider using it! I've used it in the past but decided that doing it manually is better for me. It helps me be more intentional because I'm actively doing the work myself. I find that the trade-off in time is worth it. To do these manual inputs, I use an app called EveryDollar that helps me with my zero-based budgeting. I use the online version mostly, but also have the phone app. It was created by the Ramsey group and I find that the basic/free version allows me to do what I need to.
At the end of the day, what I'm getting at is very simple - knowing what you spend by tracking expenses can help you create a better budget, which in turn can help you be more intentional about sticking to that budget. Let me ask you this - have you ever looked at a credit card statement and were surprised that you somehow racked up tons of charges since the previous statement? If I asked you how much money you spent on eating at restaurants or how much you spent on clothes last month, would you be able to give me an accurate answer? I bet most people could guess, but be off by 10% or more on the actual number. There shouldn't be any surprises because you should be keeping up with the tracking every few days.
I recommend that if you don't already have a budget created, you take some time to track your spending for the next 30-60 days and see where your money is going. It'll give you a realistic look of how much you're spending before you go awry with your budgeting. Write it down on paper into categories or put it into a spreadsheet - do WHATEVER you can to diligently keep track of those expenses. I would suggest creating a mock budget in the EveryDollar app and track your expenses in that app. By the second month, you'll have a good idea of how close you are to your guess in the mock budget, which will allow you to make adjustments.
Similarly, if you've already got a budget and you're having a hard time staying within the budget, know you're not alone. Keep being patient and persistent and make small adjustments as you go. Don't give up! Keep making small improvements and keep your goals in mind. We're trying to reach Financial Independence, but it's a long road, for sure. We'll take it one step at a time. We'll make mistakes. In the end, we'll be better for it, and it'll all be worth it
Best of luck,
Khang
P.S. If you'd like a free conversation with me about your budget, please send it over to faithandfi@gmail.com and I'd love to take a look at it!