The Spending Diagnosis Toolkit

The first step in changing your spending is to understand where your money is going. To do this, you need to spend a little time to measure your spending.

You perhaps feel that you already have a fairly good handle on this. After all, every time you spend money, you have to pull out that credit card or count some cash. In fact, we’re notoriously bad at understanding our spending because of all sorts of psychological shortcomings common to us all.

Taking a methodical, calculated look at your spending can reveal surprising things. It’s an exercise worth doing regularly.

How Well Do You Control Your Spending?

Check how many of these apply to you:

  • You don’t quite understand where all the money went by the end of the month
  • Sometimes you have trouble remembering what an item on your bank statement relates to
  • You have to get by on less at the end of the month as your bank balance gradually shrinks towards zero
  • You buy food at a sandwich shop or a deli when you know you could brown bag it cheaper, but it’s so convenient
  • You order take-out a lot even though you intend to make your own food more often
  • You go for drinks with your colleagues or friends a little more often than you ought to, buying the occasional expensive round of drinks
  • You frequently buy snacks or coffees when you’re out and about
  • You leave supermarkets with more than you intended to buy 
  • You frequently shop at a local store for small items you’ve run out of

These are all signs of impulsive, unbudgeted spending. We all do it, but we are often unaware of how much, and it tends to grow over time.

Why It’s So Hard to Control Your Spending

There are two principal reasons for this:

  1. We lack an awareness of where our money actually goes. We think we understand how we apportion our income. We think we understand how much disposable cash we have every month. In reality, if we don’t sit down to calculate this accurately, we often underestimate our spending and overestimate how much cash we have in the first place.
  2. We’re all very bad at controlling ourselves in the moment. Studies show that people who walk into a supermarket hungry can buy as much as twice the produce they would if they go in there on a full stomach. We’re impulsive and our decisions are guided by things we don’t entirely control.

We spend money so frequently that it becomes almost unconscious. We build habits where we spend without even stopping to think.

The way to fix this unconscious spending is to use tricks and tools that force us to make each spending decision a deliberate choice. This helps us avoid impulse purchases or expensive habits that slip under our awareness.

A Five-Step Approach

First aid for your spending habits

I’m going to propose five steps that you can take to gain an understanding of your own spending habits. Once you’ve gone through this five-step plan, you’ll be able to banish that nagging thought: “Where does all the money go?”