Challenges: 30 Day Challenge: Track Your Spending
The Results of the Journaling Challenge
This was my least successful challenge out of all the ones I’ve done.
I skipped a lot of days the first two weeks of doing this challenge. It’s because I had the routine set for right before I go to bed. By the time I’m ready for bed, I just want to knock out. My willpower by the end of the day is gone.
I made a switch and started journaling later in the day around 5pm. It’s important to be able to analyze your situation, and adapt to it. I wanted to journal every night before bed, but it’s better for me to find a time that I’d be consistent in.
Think of it like working out. Maybe you’d like to be the person who wakes up early and works out at 5am. In practice, you’re only consistent 50% of the time. But once you switch to evening workouts, you’re now up to 90%. In this case it’s better to develop the habit in the evening, and then switch to mornings if you want to.
Lets get back to Journaling. Here are some benefits I experienced:
- It helps clear my mind. There are some subjects I don’t want to talk about with anyone, and journaling lets me get them out of my head. It helps reduce stress to get these problems and thoughts out of my head.
- I have a record of the past. Most people remember the past through photographs or videos. It’ll be great for me to have a record of what I was thinking that day.
- Remembering lessons learned. Sometimes I’ll go through situation and learn a lesson. But then I might forget the lesson, only to re-learn it later. What a waste of time. But having a journal and reading through it again helps reinforce these lessons.
If you haven’t done so already, I recommend you journal for at least a month and see how it impacts you.
For the next challenge, we’re going to track every purchase we make in the month of January. By the way this is just for personal expenses, I’m not going to include business transactions.
Why Track Your Spending?
One of my life lessons is that “The Numbers Don’t Lie.”
I am a systems thinker. In most systems, there are three components: the input flow, the stock, and the output flow. Let me explain this in the context of money and wealth building.
John makes $5,000 a month. That is his input.
John spends $4,500 a month. That is his output.
His inventory is +$500 a month.
Most people focus on improving the input aka making more money. Making more money is good! But the problem is that for most people, as they make more money, their outputs increase as well.
John doubles his income, but his spending goes up as well.
John makes $10,000 a month.
He spends $13,000 a month.
His inventory is -$3,000 a month.
It doesn’t matter how much money you make if your spending > your earnings. We’ve all heard the stories about the celebrities and athletes who blew away their millions. This happens all the time in affiliate marketing.
A newer affiliates has a successful campaign. His lifestyle and spending increases. A new car means you have to have a nicer place to live in. You can’t take cheap vacations anymore. The problem is when the campaigns die, the monthly expenses continue. I’ve seen too many affiliates flash for 1-2 years, then they become a “What happened to xxx” story.
Tracking your spending is the first step towards having healthy finances. Most Americans are living paycheck to paycheck and are one emergency away from having their finances fucked up. Instead of tackling their problems head on, they have “head in the sand syndrome.” They avoid any thoughts about money and hope everything works itself out. That’s not a good way to live.
This month we’re going to only track spending. Don’t worry about setting a budget or controlling how you spend. I don’t want to overwhelm you. Continue spending as usual, but be conscious of where your money’s going each day.
Here’s what I’m looking for this month:
- Unnecessary rebills. Monthly re-bills add up overtime. $99 a month x 12 months = $1,188 a year. The last time I did this challenge I found over $400 a month in services I wasn’t using.
- See the categories where you spend. Say you spent $1,000 buying new clothes last month. Now that a month has past, you should ask yourself was it worth it?
- Evaluate opportunity costs. $500 may not seem as much. But try sticking that $500 in an index fund and see the power of compound interest over a few decades.
The key point of this exercise is to cut waste and to be aware of where your money is going. Waste is unnecessary finance charges. You’re wasting money if you’re subscribed to services you’re not using. Waste is impulse spending you end up regretting.
I wanna be clear. I’m not saying you can’t have nice things in life. The point of this exercise is to avoid wasteful spending, so that you can have nicer things.
Tracking spending is easy these days with technology. Here are the most common methods.
This is the easiest option for most people. You enter your bank account logins and it’ll categorize all your expenses.
Mint.com is great for an overview of your finances, but I wouldn’t use it for this challenge.
We’re tracking out spending to figure out exactly where the money is going. It’s not easy for me since 50% of my purchases these days are through Amazon. It just categorizes everything as “shopping.”
The second reason is I find it more powerful to log everything in.
2. Using a SmartPhone app
Smartphone apps are great because your phone is always with you. After each in person transaction, I just spend a few seconds to log the app. There are plenty of expense trackers on the app stores.
I recommend Sumptus because it has natural language input ($.99 on iOS).
You can’t go wrong with Excel. Just create a sheet with the columns date, vendor, transaction amount, and category. You can then use charts and pivot tables to see the spending.
If you want a full-fledged budgeting program then I’ve heard YNAB is great.
Putting it into Action
Here’s a few tips on implementing this habit.
- Set a reminder to log each transaction. I’m a fan of logging my spending in smartphones because it’s always with me. I taped a note on my wallet telling me to log my spending.
- Set a time each day to go over your expenses. I like night time around 8pm after dinner. I log into Mint.com to see if there were any charges on my Credit Card I forgot to log.
- Missed a day? Forgot to log some transactions? It’s okay. We’re here to make progress. All that matters if that you keep doing it. Logging 60% of the days is better than logging 3 and then quitting.
Money buys freedom. Money buys time. Money alleviates stress, and gives you the ability to take care of your loved ones as best you can.
It bothers me how little financial education is taught in school. I guess an educated consumer base wouldn’t be great for the student loan and credit card companies.
Next month I want you to track all your expenses. It’s not as hard as it sounds and will only take 5 to 10 minutes of your day. But understanding your finances puts you in control of your life.