Detailed Spending Tracker – A One-Month Blitz
The one-month detailed spending tracker is the first step in the Spending Diagnosis Toolkit. It is an exercise where, for one month, you monitor every single penny or cent that you spend, regardless of how small. You want to track your spending in every detail to build a picture of how and where you use your money. This will allow you to deliberately adjust your behavior to control your spending.
You’ll categorize everything in a spreadsheet at the end of the month, but for now, it’s important to note four things every time you spend anything at all.
- The date
- The amount
- What the transaction was for
- Who the transaction was with
You can do this with a tiny notepad or a folded piece of paper in a pocket. You can use an app (even Notepad is good enough). Just make sure you always have what you need to note down your spending.
Aside from providing you with the raw data necessary for a proper analysis at the end of the month, this exercise builds awareness in two specific ways.
Making Spending Deliberate
Since you’re going to have to record every single time you spend money, this creates a hurdle that you have to overcome when you want to buy something. If you want a chocolate bar, you know that you not only have to pay for it, you also need to pull out your notepad and record – legibly – that you bought a chocolate bar.
When you track spending in this way, it makes it just a tiny bit more difficult and time-consuming to buys something.
It makes you spend that short amount of time wondering: Do I really want this chocolate bar? An even better question: Is this the best use of this money?
Noticing Spending Patterns
Before you get to the point where you take all this data and analyze your spending, certain things will have jumped out at you.
You will notice repetitive spending patterns that were less obvious when you weren’t recording them. Minor indulgences like a coffee on the way to work every morning have a way of adding up and you’ll notice that early on.
You’ll also regain an awareness of spending that hides in plain sight. Every time you use your telephone to make an out-of-plan call, you’re spending money. You don’t record each of these individually, but it hits you all at once when you get the bill at the end of the month. Your utility bills are also sometimes forgotten, since they’re the same amount each month and it can feel as though there’s nothing you can do to change them. You track spending to bring these items back to the forefront of your mind. This is a useful exercise in financial mindfulness.
How To Track Spending
Find some paper, draw four columns and give them titles: Date, Amount, Item, Vendor. Fold it into a shape that fits easily into a pocket and keep it with you at all times, along with a pen.
Every single time you spend any money, no matter how trivial, you pull out this piece of paper and write down the transaction.
If you prefer to use an app, keep it simple – Notepad works well. You’ll be transcribing everything later anyway.
At the end of every day if possible, or every few days if you’re very busy, transcribe this list to a spreadsheet which has the same 4 columns. We’ll need that information at a later stage.
When you transcribe the items into the spreadsheet, you need to assign a category – picking categories for your spending is an important exercise. You should divide spending into meaningful buckets, but not too many. If you over-complicate this, the analysis we will do later will become less useful.
If you need some hints as to which categories to use, you can check my article on budget categories where I have a few suggestions and some discussion of how to make the categories as useful as possible.
Endnotes: Stop There – Don’t Analyze
For the first step, the month in which you record your spending, you should try to avoid analyzing it too much.
The aim is to get as accurate as possible a record of your normal spending habits. The fact that you’re recording your spending is going to affect it anyway. If you start analyzing your spending in detail, it will change your behavior even more.
There are two traps you want to avoid:
The first trap is to completely change your spending patterns for the month in which you’re recording your transactions. This will make the analysis useless because you won’t be able to see what you need to change going forward. The spending that month won’t be representative of your spending the rest of the time. Since you won’t know what to change, your habits will rapidly return to what they were before and the exercise becomes pointless.
The second trap is to deliberately overspend during the measurement period. People sometimes do this because they know they’ll be controlling their spending the month after the exercise, and they want to make the final result look better. If I set a high benchmark then I can more easily improve from there. This is counterproductive. You’re distorting the analysis and you’ll overestimate how much you can save going forward. It’s like eating lots before your first weigh-in at the beginning of a diet. You make yourself look bad now to look better later. This isn’t about how you look, it’s about improving your situation.
We’ll break down what you spent at the end of the month in the next step of the spending diagnosis toolkit.
For now, get as accurate a picture as possible of how you spend your money and we’ll use that later to see where you can make the biggest savings.