Steps to Unfuck Your Finances: Step 1
Know Where You Stand
The first step in the journey to unfuck your finances is to know where you stand; to be able to answer the question, “where is my money going?”. Tracking your spending is the best way to understand not only where your money is going but what drives your spending, and where your problem areas lay. You don’t have the full picture of your finances without the visibility that tracking them provides. Additionally, you may find your money is going places you didn’t realize. Tracking your spending is the single most important step you can take toward financial well-being.
The Why and The What of Tracking your Spending
So, what does it mean to track your spending? Simply put, it means keeping track of all the money you spend. Tracking your spending entails writing down or otherwise keeping track of every dollar you spend. It includes everything from your housing and transportation expenses, to your expenditures on grocery shopping and eating out. Doing so will paint a picture of your finances. After tracking a couple months’ worth of spending you will see where your money is going, and for many people, the results are shocking.
For many of us, especially in the middle class, we spend money rather freely. We have “enough” so we may not think as hard about a purchase as we should. We may be victims of lifestyle creep, where our expenses slowly creep up alongside our income, or we may simply be oblivious to where our money is going. Either way, the path to financial wellness starts with identifying exactly where we stand. In order to do that, we track our spending.
We’ve talked about why its important to track spending, and we’ve talked about what tracking your spending means. Now, its time to get into the nitty gritty and talk about HOW to track your spending.
How to Track Your Spending
Tracking your spending is not hard, and shouldn’t require much effort. There are 3 main ways to track your expenses. I recommend you consider each way and choose the one (or a combination!) that is right for you. When people fail at tracking their expenses its typically because they chose the wrong way to track it or didn’t take into account their personal preferences or hang ups.
Choose Your Tool(s)
Option 1: Use an App.
There are countless apps that track every dollar you spend, categorize it, and even send regular reports on your spending. Mint by Intuit is a good option, and the one that I use. Time commitment: 15-20 minutes to set up, no daily/weekly/monthly upkeep.
Pros: Its easy and automatic. You set it up once and Mint does the rest. Once you sign in all of your accounts to Mint it tracks every dollar spent and categorizes them as home, transportation, grocery, etc. It provides a great overview of where your money is going. Almost no upkeep is required making this a set it and forget it option. You also can see all your money and transactions in one place instead of having to log into multiple accounts, making this a time saving option too.
Cons: Categories cannot be changed or personalized which can make it tough to really isolate problem spending. Some people don’t like sharing online logins, for mint to work, you have to give them access to all accounts where you spend money from including credit cards and bank accounts.
This may be a good option for you if: You are strapped for time, have multiple accounts you use to pay for things, use multiple credit cards each month or know you will not stick with tracking your spending if you use one of the other methods.
Option 2: Use a spreadsheet like Microsoft Excel or Google Sheets.
There are a lot of spending trackers out there that range from super simple, to very complex. You can find one for free on line, or make your own. I made my own which you can find here. With this method of spending tracking you write down or input information each time you spend money. Depending on your set up you may only have to input numbers which makes it super fast and easy.
Pros: You can 100% customize this option to be exactly what you need. This can be as simple or as complex as you want it to be. If you have a well thought out set up, tracking this way may take only a couple minutes per day.
Cons: It’s not automatic. Depending on your preferences you will either need to track each expenditure in real time as it happens, keep receipts to track later, or use an app like Mint that automatically tracks each transaction, then employ that to later put all the spend into the tracker.
This may be a good option for you if: You think spreadsheets are fun, or want to take a more active role in tracking your spending.
Option 3: Manually track your spending on paper.
This is a lot like option 2, only you are using pen and paper rather than a spreadsheet. Again, this can be as simple or complex as you would like.
Pros: This method is also fully customizable, so you can do it however you like. This approach is more personal and the bit of extra time it takes to do can be beneficial to helping you understand your spending and motivations.
Cons: Its manual and takes more time than the other methods. You will need to either keep receipts, track real time or use an app then transfer the info to your tracker.
This may be a good option for you if: You want to devote more time to tracking, or want to see right away the patters you have.
Take your time choosing your tool, and consider experimenting. I’ve tried all three methods and found value in each. In the beginning of my journey I tracked things manually on paper – it really opened my eyes to the volume of spending we were doing but it ultimately was too much of a time expenditure and did not let me analyze the data in the way that I wanted. From there I moved on to using the Mint app. I loved that it was automated and that they compiled my spending into categories, but the limited categorized didn’t capture the level of detail that I needed to truly understand where my problem spending was coming from.
Choose what works for you.
Ultimately, I ended up combining methods 1 and 2. I use Mint to track each expenditure. It lists all of my transactions chronologically and I use that information to populate a spreadsheet with the amount of each transaction. My spread sheet is divided into categories and totals the amount I spend in each area. This way I can see exactly where my money is going. Over time the categories I use change as I get each area of my finances under control and no longer need to carefully monitor certain spending pattens. O encourage you to do the same and to regularly reevaluate as your spending evolves.
Set it Up and Get Started Tracking
Now that you’ve decided how you want to track you spending, it’s time to buckle down and do it. Set up a time to go through an do your first run. The first time is the hardest, so just get it done and everything after will be easier.
Make a Routine
Most people find it best to regularly input their spending into their tracker. Depending on the tracking method you chose, this may be dialer, weekly. If your frequency of checking on your spending is less than weekly, you may lose sight of your goal so make sure you are regularly looking at your progress.
Analyze Without Judgement
After 30 days you will have a very good view of your spending habits. Start analyzing where you spend a lot of money. Is it on groceries? Shopping? Dinning out? Something else? Is there something about your spending habits that bothers you? Make note of how much money you spent in each category and save that information. You will want to keep this as a baseline to show your progress moving forward.
Look at your spending habits. Don’t be hard on yourself, simply look at what you feel needs to change and move toward it.
FinanceBitchBecca
When I did this exercise, I found I spend A LOT of money on eating out and at Target. I had no idea just how much and how often I was doing it. Tracking my spending helped me see that I needed to reevaluate why I was eating out so often, and why I was spending over $1000 a month at Target. It was eye opening. But because of that, my spending tracker has categories for dining out and for Target so I can stay focused on two of the areas that I identified as problem spending.
Be on the lookout for your own problem areas where you might want to focus on in Step 2 of Unfucking Your Finances which focuses on budgeting.
Track Your Spending Again… and Again… And Again…
You need to keep tracking your spending. It’s an ongoing exercise that needs to become a normal part of your day to day life. Without intentional spending lifestyle creep seeps in, and you may lose sight of your financial goals. Whatever your money goals are, ongoing tracking of your spending will continue to be the foundation of your financial health.