This post will reveal how tracking finances can save money. Follow me as I track my own finances for one month, learn where I’m overspending, and how small adjustments end up saving me thousands of dollars.
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How I save money by tracking my finances
As you may have noticed from my 10-Year Goals page, one of my personal goals is to lose a little body fat. I’m not in my 20’s anymore and as it turns out, I can’t eat as though I’m still in my 20’s! With age comes a slower metabolism and the need to be more aware of both quality and quantity of what I eat. If I want a fighting chance at shedding body fat, I have to track everything. Everything! Without tracking, I have no accountability. No accurate awareness of the effects of the choices that I’m making.
By tracking food choices and total calories consumed, I gain insight into what is working and what isn’t and I can make smarter choices. When the data can show me positive changes, I feel more motivated to continue making progress. When I get lazy because my motivation isn’t strong enough to stay disciplined, I stop logging and start making poor food choices. One little slip-up usually snowballs into another and another. Small mistakes grow into overall poor food choices and subsequent weight gain. While it’s tough to get into the habit of logging food, when I actually stick to it there is a clear positive feedback loop that makes continued success possible.
Tracking my finances is a lot like logging calories. Every time I stop tracking my spending, I start overspending on little things. And then those little things add up into bad spending habits.
This is where financial tracking is so important.
My financial tracking history
My financial tracking history has some ups and downs. It wasn’t until the last year that I really started to embrace tracking and see it as the amazing tool for success that it is. I would track periodically, utilize the benefits, then go back to my old spending habits. Namely, I’d make sure my bills were covered but otherwise turn a blind eye. And naturally, there are consequences to choosing ignorance!
I first started tracking my finances about 8 years ago. I wanted to move from an apartment into a cute little home because I was really bothered by the stigma of apartment living. My son and I lived in a great school district and I didn’t want to be the only parent around that wasn’t living in a nice home. What can I say? There is A LOT of pressure in my area to conform to a certain high standard of living.
The first step I made in determining whether I could move was to put every single expense that I had into an excel spreadsheet. I needed to quickly calculate out different scenarios and see how my monthly finances would be affected. After just two hours of playing around with my numbers I was able to decide just how much I was willing to pay in rent, as well as what changes I could make in order to create a little more savings to remain comfortable.
This process was so helpful in making my renting decision. I was able to very clearly negotiate my price because I knew exactly what I had to spend. Unfortunately, once I made the move, I stopped tracking my spending. I revisited my spreadsheet a few more times over the years, mainly when a big life change was coming up and I needed to make a decision. It was very helpful in making those choices, and I always had a better idea of what my spending looked like, but I failed to use it as a tool to get ahead.
What was the consequence of not continually tracking and monitoring my spending?
I finally came to my senses years later when I realized that I was floating by, not really making any financial progress, and feeling very frustrated that I was living paycheck to paycheck.
I revisited my excel spreadsheet, filled in my last 30 days of expenses and started investigating every single spending category. This process was extremely insightful and I found multiple categories that needed attention.
After one month, this is what I learned
I was spending $600 alone on my car loan and my commute. I was also spending up to 3 hours sitting in traffic every single work day. This was the first category to tackle. I researched possible ways to decrease my commute time and considered paying off my auto loan. Then, I was able to map out a route that involved biking and taking the train to work instead of driving. When I researched commute programs offered through my work, it turned out my employer would pay me to hand in my parking permit and they would cover all public transportation expenses.
I also ran the numbers and decided it was beneficial to take money out of my savings and pay off the remainder of my car loan. Here’s what my updated expenses look like:
Not only did I decrease my auto expenses by $493, I now get my exercise in by biking every day, I’m way less stressed out from sitting in traffic and dealing with road rage every day and I’m being kinder to the environment. This has been a huge lifestyle improvement.
Action Step: For examples of expense tracking categories, visit 150+ Expense Tracking Categories to Help You Track Your Finances
Tip: If you follow along with The True Cost of Your Morning Latte, what would $326 savings per month look like in 10 years? $56,000!!
For a family of two (and one not even an adult!), this is a lot of money. Do I really need to be spending this much on food? I’ve since set myself a budget, complete with text alerts from my bank as soon as I reach 75% of my set amount. I eat out less, make my own coffee at home and started planning my lunches for the week, usually by making extra food the night before and taking leftovers to work the next day. Here’s my updated budget.
Overall not a huge improvement, but I’m still working at it, trying out different meal planning solutions to find what works for me. And really, an extra $230 saved every month is not insignificant!
We all know the drill. Every 1-2 years you start to notice that your cable bill has suddenly skyrocketed up. We have reached the end of our promotion pricing. Arg!! I called my cable provider and requested an internet only plan that wouldn’t change price. I dropped my cable and added Hulu. While I was really hoping to find some big savings in this category, it didn’t work out that way. Total cost savings: $15. But at least I won’t have to call them back every year.
Here’s the category that still needs a complete overhaul if I really want to aggressively increase my savings. Check out my post The True Cost of Your Morning Latte to see just why I battle with this category. Off the bat, I can say that my personal care spending doesn’t hurt me when I’m not tracking my expenses. I don’t notice a big dip in my checking account, I’m not using my credit card and racking up debt when I pass by the Mac counter at the mall. But when I do track my expenses and I see the total for this category, I have to do a double take. I spend what on personal care?!?! What the hell happened! And why would I need to spend this much? So I’ll lay it out there for you, here’s what my spending looks like:
|Averaged monthly salon||$85|
|Skin care (Sun damage reversal)||$50|
|Skin care (Products)||$150|
If I were adding this to my long-term savings every month, I’d have an extra $50,000+ in wealth in 10 years. That’s significant. So how do I regain control of this?
I could go through with the painful process of breaking up with my hair stylist and face her disappointment in me when I tell her I plan to start coloring my hair myself. Yes, I’m afraid to do this. I’ve been using her for years. She knows me better than some of my friends do! She will tell me that I’m making a mistake and my hair won’t look natural or be as healthy. I’ll be taking away from her livelihood. My hair will look terrible. My excuses go on and on and on. The reality is that I will save a lot of time and money and hardly anyone will notice the difference. And my savings account will thank me.
I could also decrease my skin care treatment and product expenses. No one likes getting older. More so, no one likes looking older. Today there are ever-improving options to slow down the visible aging process and reverse sun damage. This means professional treatments and high-end products for maintenance. Yes, this is elective. I spent a lot of time in the sun throughout my youth and I’m paying the price. I also continue to spend a lot of time in the sun with all my bike commuting now.
My plan to lower my spending in this area is to keep researching appropriate product lines for my skin care needs and minimizing treatments. Being aware of my overspending is half the battle and I’m not likely to give in to buying anything other than the services and products likely to make the most impact. Overall, I can bring my spending down by at least $100/month, it’s just a little harder for me to make this switch. Continuing to run my numbers every month and seeing the financial damage I’m inflicting will get me there.
TIP: The main reason that I am having trouble cutting spending in my personal care category is I don’t have a specific savings goal set. I still don’t know exactly where I am going. I’ll refer back to something I say a lot:
If you don’t know where you started or where you are going, you have no clear path to follow.
– Dawn, FI & Wine –
In tracking my finances, I know where I am starting. But I haven’t clearly defined where I am going. Why would I change if I haven’t clearly defined the reward for my frugal efforts? It’s so much easier to turn a blind eye and fall back on ignorance. However, if I were to determine that I could achieve financial independence and leave my job in 5 years if I decrease my spending by an additional $500/month…… I bet I’d find a way to cut down on my personal care category!
As I combed through all my expenses, I found a few that I didn’t even know I was paying. These are in the form of auto-renew memberships or services. I had multiple health apps for my phone that I was no longer using and yet my credit card was automatically being charged every month to renew the services. Here’s what I found:
While this isn’t much compared to my other spending categories, it’s still $60 that I was unknowingly spending every month for services that I was no longer using. That’s $720/ year that I would have spent had I not gone through every little expense while tracking my finances. These little errors add up.
While it might seem like a painful and time consuming process to track your income and expenses, it really is the only way to know exactly where you are and create a plan for where you want to go.
By tracking my own spending I was able to make significant changes and map out areas that still need improvement. This is the equivalent of logging those calories and then watching the weight drop off. I was able to increase my savings from $0/month to over $700/month. That’s a diet I can stick to!
Map out those finances! You can do it!
- Make categories of your common expenses and take a look at your totals.
- Do any of these surprise you?
- Can you think of ways to make improvements?
- Take three months to monitor your changes and make a game out of how much money you can save yourself.
- Be sure to take that extra money left over and move it into another account so that you aren’t tempted to spend it.
- If you try cutting out an expense, like your morning latte, and find that this little joy is missed dearly and the lack of that latte is sucking the fun out of your day, then that’s okay! Add that expense back in. We all have things that make up happy in life. Some things can be replaced with more frugal alternatives, some things can’t. There is a reason this blog is called FI & Wine. I love wine and I wouldn’t give it up just to save money every month. This a simple pleasure that deserves to be there. Find something else to cut out!
- I’d love to hear how it goes! Leave any questions or give us an update in the comments below on what you learned after tracking your finances!