We talk A LOT about expense tracking in financial counseling. “But why?” You might ask. “Doesn’t my bank account and credit card already do that for me?”
Well...kind of. Lots of credit cards and banks offer basic expense tracking in their online interface or app. But that’s only the beginning of tracking. You have to engage with the data, too!
I like to tell my clients that tracking their spending money is the foundation of financial empowerment. It’s one thing to write down all your spending but never actually think about if that’s how much you want to be spending, or even if you can actually afford to be spending that much. The important - and, frankly, scary! - part of tracking comes in when you remove the wool from your eyes and take a hard look at where your money is going and think about if that’s where you want it to be going!
This task is not a “one and done” or “set it and forget it!” type of deal: you build a budget based on how much you can (and want to) spend in various categories and then track to see how close you are to those limits. It’s an on-going process, and one that involves a lot of FEEEEEELINGS. Be prepared to encounter some serious emotions and find healthy ways to unpack how to manage these emotions as you work towards your financial goals. Too often, money controls us, when it should really be us who control our money.
With these thoughts in mind, here’s some ideas on how to get started:
Write down EVERY. SINGLE. LITTLE. THING. you spend money on, and the exact amount you spend. No rounding, no cheating! That can of soda you buy for $0.50 at the office? Track it! The internet bill that gets automatically deducted on the 5th of every month? That too!
#ProTip: Track your income, too! How much do you get paid, and how often? What bills come out of each check?
This is a great way to map your income and spending onto the month (and, eventually, year)./p>
Don’t fall into the trap of making one huge “miscellaneous” category, but also avoid making every single purchase its own category. You want to have categories that are meaningful to you and easy to cut spending in if need be.
#ProTip: Utilize the 50/30/20 rule! HThis is a nice way to sustainably think about your spending: 50% of your income should go towards Needs (the basics you need to survive and bring in an income: rent/mortgage, transportation, utilities, groceries, insurance premiums, etc.), 30% towards Wants (the extraneous things, the spice of life! Things you can survive without: dining out, entertainment, travel, etc.), and 20% towards Savings and Financial Goals (paying down debt, saving for both short and long term - a car you want, a big trip, a house, retirement, etc.)
These sneaky sneakers eat up a surprising amount of money! Keep an eye out for them as you track and see if you can minimize them or get rid of them outright. Reading the fine print on any accounts will help you strategize around this!
#ProTip: Track your app/streaming service use. Are you using all your streaming services that you pay for? Or are you still paying for HBO YEARS after the most recent season of Game of Thrones ended and haven’t been back since?
Tracking doesn’t just include what money you usually spend in any given month. It includes the money you might spend every few months, every year, or even just once in a lifetime.
Set/Stable amounts: When is your car due for registration? Or your driver's license? Subscriptions that are due annually? Things along these lines.
Variable amounts: Gifts/parties for the holidays and/or birthdays, anticipated car repairs/maintenance, etc.
Anything unexpected: Life happens, which means you’re going to encounter unexpected expenses, usually of the not-too-fun variety, though they can be fun opportunities as well (weekend spur of the moment getaway anyone?). Often expensive and temporarily life altering, these are the things that often get put on to high interest vehicles, like credit cards. Though a credit card is a great way to pay for something in the moment, you want to be able to pay it off ASAP to avoid interest charges. This is where the ever-important Emergency Fund comes in! Which we’ll talk more about in a future blog.
#ProTip: Use savings smartly. With infrequent expenses, it's great to leverage savings to have the money for them! Estimate how much you usually spend on the things you can predict in a year, divide by 12, and work on saving that amount each month.
And there you are: a brief rundown on tracking, the foundation of all the work we do at the PGH FEC! This task is always the first one, and perhaps the hardest. Definitely work on giving yourself a lot of grace - you won’t change ingrained financial habits overnight! And one misstep doesn’t mean you’ve ruined your whole tracker and you’re doomed to never get out of debt. It’s just another step in the process. So, onward, my little financial empowerment hatchlings! You’ll be flying out of the nest before you know it and I’ll be oh-so-proud!