My best advice #5: Keep track of your expenses: The big difference between rich and poor

As far as I know, no one has ever become rich by just spending money. To find out where my money flows or how much I spend for this and that, it’s in your my interest to know my expenses. In the following article I will explain why it is also good for you to keep track of your expenses and of what you’re spending your precious, hard-earned money on.

Why it is so important to keep track of your expenses

Your own income is usually easy to keep track of. If you are employed, usually there is only one or a few main sources of income. For most people, the source is probably their full-time job, and the money is usually transferred once a month to their bank account.

When it comes to expenses, things are more difficult. There is a large share, such as rent or insurance, you know very well about. However, there are countless other expenses that occur randomly within a month or that are spread over the year.

You probably have experienced it too: you start the month and the first week seems to be manageable. €15 here, €50 there, another €20 here, the rent is quickly transferred and so on.

From the second week on, the show begins: “Did I spend 200 Euro last week or maybe 350?”. Towards the end of the month, you feel like you have been withdrawn several time money from the ATMs and still have no cash in your wallet.

I go now through life being financially mindful.

What used to bother me a lot is exactly this feeling: not knowing how much I have actually spent and how much I am still allowed to spend before my bank account is empty.

This is the reason why I started tracking my expenses back in May 2018, shortly before I started a new job. After all, taming one’s expenses is important independently of the income; however you can learn that wealthy people are usually very aware of their expenses.

(More about this topic on another day, but it is one of the important lessons I got from the book Rich Dad Poor Dad: What the Rich Teach Their Kids about Money That the Poor and Middle Class Do Not!*)

A few years later, I have come up with 3 good reasons (plus a bonus one) you should keep in mind as reasons why you should keep track of your expenses.

Reason #1

Reason one is obvious: Tracking your expenses and knowing at any time how much you have spent so far ensures you stay in control of your spending. You also know exactly how much room you have for improvement.

After I started documenting my expenses in 2018, I used a real budget planner App relatively quickly and still use the same planner today, as it fulfill all my expectation. Over time, I have accumulated quite a bit of income and especially expenses, which I can now filter, evaluate and compare as I please.

But you don’t have to wait several years before you can use the data and get actionable insights from it. After just one month, you will have a very good idea of where your money is exactly going.

The longer you track your spending, the more you will learn about your money and yourself. You will get a very good picture of it after 12 months, because by then all costs, even the ones that happens once a year, will have appeared once, even those that are only paid once a year, such as insurance, vehicle tax, etc.

Reason #2

Keeping track of your expenses is the unique chance to evaluate your consumption behavior over time. Due to the fact that many budget planners offer numerous functions such as filtering, comparing, exporting, etc., you can very easily analyze different types or amounts of expenditure month by month and draw actionable conclusions.

After you have tracked your expenses for some months, it is now time to let them talk. Your goal should be to have more money left at the end of the month and at the same time to get more out of your money – in other words, to increase your savings rate without having to renounce to what you enjoy.

And this can only be done if you identify unnecessary expenses and fight them.

After you constantly evaluate your expenses, you will notice, for example, that you pay monthly for a music streaming service and have subscribed another one without really using it. Or you realize that you spend more on electricity than on food every month and that you could easily change providers and perhaps identify one or two electricity guzzlers. Or you realize how much other supposedly small expenses, such as smoking or your morning coffee to-go, cost over time.

Reason #3

This is the absolutely necessary basis for being able to optimize your expenses. Then once you know where your money is flowing to, you are able to cut unnecessary expenses and to save actually more of your income.

Then monitoring and tracking your expenses doesn’t help you any further, as long as you don’t take action based on this knowledge. Like an entrepreneur, you decide which expenses are necessary to keep you growing, which ones are required for “maintenance” and which ones are utterly unnecessary.

Bonus

The 3 reasons mentioned so far are more of a financial nature, which means you will know how much money you spend, what you spend your money on and how you can optimize your money.

However, there is a bonus reason you shouldn’t underestimated: Having full control over your finances.

Not having control over my finances, whether I earned well or not, had quickly lead to stress and depression.

In combination with a sufficient financial cushion, being in control of my own expenses – and finances in general – has been the foundation and recipe for success for a restful and carefree sleep. So the psychological value of knowing what is going on is very important for my well-being.

Perhaps you and your sleep can benefit too from having control over your financial life.

Common objections and rebuttals

“I can’t follow every single issue; it takes too much time.”

If you have so many expenses that you can’t write all of them down, then let’s reflect on this. I’ve been using a budget planner since 2018 and I track every single expense.

If it was a holiday where I didn’t always have my mobile phone with me or if it was an evening where a lot of individual expenses came together, then I write them down consolidated as one expense. It’s better to consolidate and round off than doing nothing.

(In case you feel like you suffer from chronic lack of time, consider reading this article about the topic – and how to manage it.)

If it costs you too much time, it’s certainly advisable to track all your expenses, because it sounds like there’s a lot of potential for optimization!

I don’t want to save my expenses and income online.

I use an online budget planner and I know that some people may not necessarily like documenting their expenses and income online.

However, this perceived insecurity can easily be put to rest.

First, use the App of a reputable vendor. Almost every bank offers one or several budget planer App you can download and use. Or you take a look at legitimate vendors in the Apple or Google App marketplace, watching out for data security and a high level of encryption.

Secondly, make your entries anonymous. When you enter your salary, you are not forced to write down which company you work for or to add your company ID. The type (income), the category (salary) and the amount are sufficient.

You can also anonymize the email address needed for registration (e.g. use an abstract name for the email address instead of your own), if you want to get the maximum anonymity.

Third, use offline solutions. If you are still skeptical about an online budget planner, there are also offline solutions such as Excel templates or even entire offline budget planners.

I already manage my money well; I don’t need a budget planner.

I bet you do. And I can promise you that you can easily save 100 Euro every month after the first 3 months just by taking a closer look at your expenses.

In addition, at least for me, it awakens the ambition to get more out of my money and I spend my money in a much more targeted way without even having the slightest feeling of having to to renounce to something.

In the end, your household is very comparable to a small business that has the same income and expenses. A healthy company is characterized by the fact that it achieves positive profits month after month, year after year. So you should also earn more money than you spend, month after month, year after year. And I think the best way to do that is to know your expenses.

How I keep my spending under control

The budget planning / budget tracking App I use

As already mentioned, I have been using the free web budget planner App since 2018.

The core of the planner are the categories that you can select for income or expenses. I suggest you adopt at least the following ones, but feel free to add more if they suits your need.

• Groceries: This includes food, drinks and small items you can buy in any supermarket.
• Restaurant: Whenever I buy or order food somewhere, I keep track of the expenses here.
• Housing costs: This item includes monthly rent, but also accommodation costs in hotels or other accommodation.
• Clothing: This takes into account all clothing items needed.
• Education and training: For example learning platforms, books, etc.
• Entertainment: Cinema, concerts or festivals.
• Travel: Money spent on holidays.
• Transportation: All expenses for cars, public transport or airline tickets.
• Hygiene and personal care: From deodorant and shower gel to perfume, drugstore items are included in this category.
• Insurance: Everything related to insurance expenses.

If you have special expenses that should be included in a separate category due to their amount, you should of course include them. One example is the costs of keeping pets, if you have pets. Categories that appear rather infrequently can of course be consolidated just as well.

The following rule applies to the categories: as many as necessary; as few as possible.

After you have tracked your first weeks and months, your Budget Planner will look something like this:

The main reason why I still use the Budget Planner App is that it is very easy to use on the move. I make all my entries via smartphone in the moment I spend the money; it only takes a few seconds.

Try the web budget planner yourself and create some income and expenses. If you find a better budget planner, let me know. I think this one is really great so far.

In any case, I advise you to watch, analyze and optimize your expenses. Believe me, it will be one of your best investments for the future!

Keeping track of your expenses In a Nutshell

Know your expenses inside and out, because that’s the only way you can get the most out of your hard-earned money and start building your wealth sustainably.

3 important reasons why you should track your expenses, e.g. with the help of a budget planner app:

1. Reason: Knowing at any time how much money you have already spent;
2. Reason: Evaluating your spending and know what you are spending your money on;
3. Reason: Optimizing your spending and cut unnecessary spending.

A budget planner that has worked very well for me for years, especially on mobile devices, is the free budget planner App Our Budget Book for Android.

Keep track of your expenses; Check your account statements; Categorize your expenses; Use a budgeting or expense-tracking app; Explore other expense trackers; Identify room for change; Stick to Your Spending Limits; Choose What to Do With the Money You Did Not Use; Track you expenses; Use a budget planer app/our budget book; On the travel photography blog of claudio salvati photography.

Tracking your spending is often the first step in getting your finances in order. By understanding what you spend money on and how much you spend, you can see exactly where your cash is going and areas where you can cut back. How you manage your money is a personal decision that only you can make. While some may prefer logging each of their transactions manually, others may like an app that syncs to their accounts and tracks expenses for them.

No matter what route you choose, make sure you are setting aside routine time to check on your spending and evaluate your financial progress as you go. At the end of the month, you have the option of rolling the money over into the next month’s category or transferring it to a savings account. For bills that vary, like your power bill, you may want to roll the balance forward to help even out the cost of the utilities each month. For things like groceries, you may want to transfer it to savings so that you can build up your emergency fund or work toward other goals.

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