If I could close my eyes and make one change in everyone’s finances I know what it would be. It wouldn’t be to have everyone pay off their debt. It wouldn’t even be to make everyone start saving for their futures. Although those would both be awesome.
It would be to have everyone start tracking their spending. It’s so simple yet so powerful.
Why would I choose this one act over paying off debt and saving? Because if people actually knew where they were spending their money they would be so surprised that they would start paying off debt and saving on their own, without me having to wish for it.
Take weight loss, for example. Since having kids I’ve been on active duty in the battle of the bulge. I know, without a doubt, there is only one way for me to weight. I must track my eating. It’s the only way. Otherwise, what’s the difference between one cookie or 5? When I’m not tracking my thought process is “oh well, I had some cookies. I’m a terrible dieter. I’ll try again tomorrow.” And the next day I do it all again.
When I am tracking my eating my thought process is “1,000 calories in cookies! Oh my gosh! That’s half a day’s worth of food! No wonder I can’t lose weight. I’m never doing that again.” And the next time I’m confronted with cookies I’m a little more careful. I stick to one… or none.
It’s the same process with tracking your spending. When you actually see how much those lunches out at work are costing you it might motivate you to make a switch. When you realize how much you paying in debt payments every month you might decide those credit cards need to go. You might do some figuring and decide that a brown bag lunch twice week is worth it if you use the savings to pay off your debt.
I ask all my clients to track their spending. Few take the time to do it. Maybe it seems like a tedious task. Maybe they don’t understand it’s power. Maybe they are afraid of what they will find. I don’t know. But those that actually do it are always amazed. Never once have I had a client actually track their spending and then complain about the process. Every single person who does it makes positive financial changes between our meetings.
It makes them feel powerful and in control of their money. Isn’t that what we all want? To feel like we control our money instead of the other way around. Tracking what you spending will give you that control.
Ready to start? Its simple.
Create some broad categories that will catch all your spending. Categories like groceries, eating out, gas, rent, car insurance, entertainment, and so on. You don’t have to get crazy with it. The fewer categories the easier it will be. Excel is a nice program for this but you can use a pad and paper if that works better for you. Then as you go about your day get receipts for any money spent and hold on to them. At the end of the day go through the money you spent and tally up the spending in the different categories. If you have already spent some money in a particular category for that month add today’s spending to previous spending so you have a running total.
At the end of the month you will have grand totals in each category. Next month, do it again. See how they compare. Make changes if you want and keep going. Be careful though! If you get too excited about it you might end up with a budget. Yikes!