Money Truths: Track Intelligently
Long before I started Smart Sister Finance, I lived by some key Money Truths. These are a collection of guidelines, mantras and philosophical stances around money and finances that have helped me carve my unique life path.
The first Money Truth is Track Intelligently. For those of you that have been Smart Sister Finance coaching clients, you know that I don’t care much about budgeting. Budgeting is a bad word for most people. It feels restrictive and something you want to break out of as soon as possible. When you tell yourself you can’t get food delivery this week because you are on a budget, food delivery becomes the only thing you want to do.
Even if you don’t have a budget, you still may feel that you spend too much on eating out. So, how do you fix that? The Smart Sister Finance solution is to track spending. Looking at the last several months of actual spending is facing the realty of your expenses, not the wishful thinking of a tight budget. There are many ways to track your spending, but it may be easiest to just download your checking account and credit card statements and group them into categories. Many credit card companies provide some categorization already, so it’s just a matter of sorting your transactions to get the totals.
Once you have looked at the last three months of your restaurant, bar and food delivery purchases, you understand your trend for eating out. If the amount feels too high for you, set a goal to reduce it next month by $50, $100, or whatever seems achievable. Redirect that money to something that you have wanted to save for but haven’t found the free cash to do so. Start a Travel Fund, or pay down a debt faster.
Tracking your spending for a whole year can be life-changing. If you want to commit to that, try the Smart Sister Finance 12 month Cash Flow. Looking at all of your expenses over a longer period of time can help you understand your expense trends and whether what you buy lines up with what is important to you. If your dogs mean the world to you, you should expect to see Pet Expenses be a large part of your discretionary expenses. That is totally okay. But if you think you spend all of your free cash on your pets and instead your clothing expenses are three times that, you may not be in alignment.
Paying attention to your actual spending over a long period of time also helps you keep your expenses in check as your income grows. Lifestyle creep is real and can prevent you from achieving long term goals like buying a home or retiring early. Saving more by spending the same amount as your income grows buys you life choices. And, believe me, life choices are way better than a new pair of boots!
Tracking Intelligently is also about focusing on the expense categories that make a difference. Don’t sweat that afternoon coffee… but do make sure that your housing costs are less than 25% of your gross income so you can make sure to have enough money for all of your essentials like food, transportation and any debt payments.
What tools do you use to track spending? Mint? You Need A Budget? Your own personal spreadsheet? Let us know what works for you in the comments!