Why Track Your Spending
Tracking your spending is the one habit that will have the biggest impact on turning your finances around, paying off your debt and building wealth. The best thing is it only takes 5 minutes a day.
If you don’t track your money, it is impossible to know where it’s going. If you don’t know where your money is going, it’s impossible to save intelligently. There’s no point buying home brand if you’re spending $200/week on take-away food/entertainment.
Where money tracking really puts money in your back pocket is identifying little expenses here and there that add up to a lot over time. Those two $3.50 coffees a day, that’s $2,555 a year. Buying lunch at work for $8/day, that’s $1,920/year. That six pack of craft beer here and there (once a week at $22), is actually costing $1,144 a year. Between all of those little expenses that’s $5,619 a year.
It can also do the reverse. Power bills tend to get a lot of attention because they’re large and don’t come that often. A $500/quarter power bill is only $5.49/day. People put a huge amount of effort and expense into reducing their power (LED Lights, solar panels) when taking your lunch to work rather than buying it could have a bigger effect on your finances.
How to do it
There are a lot of complicated ways to go about it. For me the easiest way is to just do sit down EVERYDAY for 5 mins and record everything I spent from my internet banking. I don’t spend cash. I pay for everything with a debit card. Just record it under categories that make sense to you and your family. Don’t overthink it. The important thing is to just do it.