I Was a Slacker
If there is one thing that is drilled into our heads about finances from a young age, it’s to keep track of your spending. Realistically, how many of us can say that we have actually done it consistently? I definitely slacked at recording my spending for, let’s say, 20 years of my life.
This means that for about 20 years, I really had no idea how my money was coming in and going out. I was pretty much blind to the amount of debt that was piling up because I was falling back on credit cards and loans. It was just easier to stay blind to what was really going on instead of being responsible at the time. That is, until I realized that the debt owned me and I really didn’t have a clue where my money was going.
When I got married, became a father, and started to realize that I was financially sinking like the Titanic, I knew it was time to figure out what I was actually spending my money on.
Recording and tracking your spending is like putting yourself and your life under a giant microscope. The way I started is by going back in time through my bank account and credit card statements. I wanted to know how I was spending money in the past so I could immediately figure out what I could do to change things. Once I saw where my money was going, my wife had to use smelling salts to wake me up.
Just the eating out at restaurants, along with the vending machines, and sodas at work, were enough to make my eyes roll back in my head. That, along with the various crap at Target, outlets, and online shopping that I know for sure we didn’t need, it became obvious that I had a lot of work to do.
Tracking Vs. Budgeting
There is a difference between recording and tracking your spending and creating a monthly budget.
When you create a monthly budget, you are assigning values to what you are going to spend on each expense category. When you are recording and tracking your spending, you are accurately representing what you have actually spent in each category. Budget = Future, Recording = Past/Present.
The huge benefit of recording and tracking your spending is that you are able to see trends and areas where your spending may be way too high. You will see areas where you may be able to cut back. This is your chance to adjust your monthly budget to make it more realistic and achievable. So, in reality, budgets and spending tracking go hand-in-hand.
Can You Change Your Habits?
So, you now have the grim reality that you spend way too much money on things you don’t need, food that isn’t doing you any good when you can eat at home for a fraction of the price, and putting things on your credit cards that absolutely should not be financed.
The problem is that your spending choices have become habits over the years. Anyone who has smoked, or has had an eating problem knows that habits are almost impossible to break. Spending is just like any of those other habits.
Charles Duhigg describes this habit cycle in his book, “The Power of Habit”. IT is a cycle of cue, routine, reward. There is a cue of wanting to spend money or buy something. That impulse of feeling the “need” for something. Your routine is that you buy it, normally without thinking of whether you can really afford it. Your reward is that you feel better, at least for about 5 minutes.
Changing that habit cycle involves replacing the routine portion of the cycle but keeping the cue and reward portions the same. Basically, you would still have the cue to want to purchase something and you still want the reward of feeling better, but you need to do something other than spend money on it.
What do people who are having issues with smoking or overeating do? They find a different activity, such as walking, pottery, knitting, whatever. Anything other than smoking, eating, or spending money. You want to find an activity that gives you the same or nearly the same feeling that spending money would give you.
I can hear you screaming at me now. If it was that easy, you would have done it by now. Exactly! It is not easy, that is why so many people like you and me, visit personal finance blogs, buy the Dave Ramsey programs, and spend so much money on the books that are going to get us out of debt.
The Real Reasons to Track Your Spending
When you track anything you do, whether it be what you eat, your moods, or your spending habits, you become more conscious of your actions. Studies have shown that when you put things down on paper, or in today’s age, on a computer, you are actually holding yourself accountable and tend to stick to a program more-so than if you do not track them.
If you go to a store or visit a website and are about to buy something and realize that you are going to have to add this purchase to your tracking database, you will tend to think about it twice. Just like if you are keeping track of your eating habits and you are about to eat that stack of cookies and you realize you will have them on your list forever. You will have to look at them all the time and see that you cheated.
By tracking your spending you can see where you are “spending heavy”. What areas do you tend to spend more than you should on? Do you notice that you are eating out more than you should? Are you using more fuel than you normally do? Have you bought more clothes than usual? Look at these trends and see what could be causing them.
When you get a true picture of your spending, a true picture of your habits, you will then be able to determine the best path to battle your debt monster. If you never see the picture and remain blind to your true spending habits, it will simply be impossible to climb out of the hole that you have created.