In 2015, I ran my first personal finance workshop, “Let’s Talk About Money” to a group of individuals who were looking to get out of debt, start building their savings and learn more about pensions. The workshop was an informal session held in a function room of a cafe in East London. The idea was to get people together to help them talk about money in a non-judgemental environment, but also to provide them with valuable insights from mine and my co-facilitator’s experiences of getting out of debt. To kick things off, we asked each attendee to write down their salary and what their ideal salary would be. Each individual diligently wrote down their figures. We then asked each individual to write down what they spent that day, week and month; their faces dropped. Then came the questions: “Do we need to write down the exact amount or can we just use an estimate?”, “What if I can’t remember what I paid for?”
Whenever a friend asks me about how to manage their money better I always start by asking, “Do you track what you spend?” The usual response is ‘no’. After a slight pause, the friend then goes into great detail about why they don’t track. After they’ve finished explaining every conceivable reason for not tracking, I ask them, “How do you know where your money is going then?” I’m often met with silence. Sometimes I’m told, “I have a rough idea of what I spend money on,” or “I’m not in debt or anything so I know I’m not spending more than I earn.” While these are all acceptable answers these responses aren’t helpful for anyone who wants improvement. By responding in this way the individual has not opened their mind to my suggestion. They’ve merely come up with further justification for continuing as they are, even when they know they aren’t happy about how they manage their money.
In both cases, the individuals knew what they earned but didn’t know what they spend. They had only been paying attention to one part of the equation: their income.
What 10 years of tracking my spending taught me
I started tracking my expenses when I was 16. I was going through a rough patch and I decided that, to move on, I had to find a way to regain control of my life. I decided to write down everything I spent for one month. I wasn’t sure what to expect from my experiment, I just knew that I was up for the challenge. One month of tracking my expenses ended and I looked at what I had spent.
The act of tracking is powerful because you inevitably pay more attention to what you’re spending knowing you’ll have to write it down. Most transactions, when not tracked, are forgotten as soon as you’ve left the shop or closed your browser. Since I was tracking each expense, when I came to look at my expenses at the end of the month I already had an idea of where most of my money was going - it still wasn’t exact but it was better than any estimation I could have made without tracking. What did I discover? Looking at my expenses from the previous month I discovered that I had spent more money on frappucinos, eating out, beauty products and magazines than I thought. I hadn’t realised that I had bought coffees, food out and beauty products. These expenses were unconscious and, ironically, got me thinking.
What else do I buy unconsciously? I already knew that I bought magazines regularly because I had a pile of half-read magazines at home next to my bed. I scanned my expenses again: coffees, eating out, magazines, bus fares, new trainers and numerous pieces of clothing. I felt like I was spending a lot for a 16-year-old with no rent or bills to pay and with a part-time job working on minimum wage. With this data, I realised that I didn’t need a lot of the things I spent money on and I started thinking about which purchases impacted on my happiness. For those purchases that didn’t contribute to my happiness, I thought about why I found it easy to spend money on these things. Was it just a bad habit? Did I feel pressured by those around me to spend more than I needed to? Was this really the lifestyle I could afford? Was this lifestyle even making me happy? Tracking for the first time showed me where my money was really going versus where I thought it was going. Being accountable for every expense meant I could learn what my spending patterns were and helped me link my spending to my lifestyle. While I was beating myself up about how some of my expenses had really added no value to my life, I realised that making myself feel guilty wasn’t helpful either. Instead, I could use the insights to motivate me to continue tracking and proactively start aligning my spending with my values.
It’s been over 10 years since I tracked my expenses for that one month when I was 16. I’ve continued to track every expense since then and continue to find value in doing so especially when it comes to my end of month review. Tracking expenses wasn’t just a good habit: it was the first habit I formed to improve my personal finances, build wealth and ultimately quit my job. Tracking expenses gave me the flexibility to improve my lifestyle.
Why tracking is the first step
At my personal finance workshop, “Let’s Talk About Money,” I recommended tracking expenses as the first step to improve attendees’ personal finances. I recommend tracking as the first step because it increases your awareness of current decisions when spending money. It’s a win-win approach: you either find that you weren’t aware of what you spent previously or you find that the data from tracking your expenses confirms that you are aware of what you spend. It’s a helpful starting point because it takes into account nobody else but you. How do you spend your money? Knowing what you spend gives you a benchmark from which to improve your personal finances. You can know how much debt you’re in or how much you earn but neither provides you with the granular detail of how you use money from day to day.
Common reasons for not tracking
I then asked if anyone had tracked their expenses before. Most of the attendees had done so previously but had failed to keep the habit up. I heard similar things from peers and friends about why they no longer or never had tracked their expenses. These are just a few of the things I hear:
"I find it tedious. I don’t really see what the value was in tracking every expense."
I grant that writing down every expense may not be the vision you had, when you were a child dreaming about what you’d be when you grew up. If you’ve already decided that it’s tedious to track your expenses, you may forget other activities that you do every day through habit that started out being tedious: washing up dishes, flossing your teeth and cooking. You kept up the tedious activities for a reason: they provided you with value. You have clean crockery to use for each meal, your dental expenses are affordable because your teeth are healthier and you eat well because you put effort into cooking balanced meals. Focus on what you’ll gain by keeping up with the tedium of tracking your expenses. Struggling to think of the gains? You can find reasons to track expenses after this section. If you already track your expenses, be proud. It’s a simple step that not everyone can put it into action easily.
“I don’t want to live my life like that.”
When a friend asked me if I was always in my overdraft, he was shocked to hear that I wasn’t. He asked if I had savings. When I confirmed, he said, “I’m always in my overdraft. Every month without fail. I don’t know why.” In an attempt to help him out I said, “You could start tracking what you spend.” He responded sharply, “I don’t want to live my life like that.” When I pushed him to elaborate he became short with me and mumbled something about tracking expenses being extreme and only necessary when you’re poor. Contrary to his claim, tracking expenses isn’t just something poor people do; many millionaires track their expenses and live by a budget as shown by research in The Millionaire Next Door. The perception of how millionaires live continues to be challenged by books that investigate the lifestyles of self-made millionaires. TV programmes show us the glitz, glamour and designer clothes shopping side of some millionaires’ lifestyles but books like Secrets of the Millionaire Mind argue that this type of behaviour is just one extreme and not representative of many millionaires. Now, when people say to me that they’re in debt but refuse to try tracking, I think to myself: I don’t want to live like that. What kind of life are you really living if you’re constantly in debt?
“Tracking makes me feel guilty.”
Tracking your spending is easy. Learning that you’ve been reckless with your spending is hard. As you record each expense you may or may not feel emotional. If you dread the thought of tracking, that’s a sign that you’ll really benefit from this step. If you fall into this category, it’s worthwhile making a note that the more effort you put into making tracking a daily habit, the quicker you’ll get used to your feelings and they’ll eventually become easier to handle. When I mentored a woman who was a few thousands pounds in debt from credit cards, I asked her to track her expenses and to try to do so every day. I also offered to look at her expenses every week, if she found it helpful. Our mentoring sessions were once every couple of weeks and before that catch up she would send me a quick breakdown of what she had spent for the last few weeks. When I asked her why she shared her spending only when we were about to meet, she said, “I’m an all or nothing person. I found it challenging trying to write everything down. At most I could write down my spending at the end of each day but even that was difficult. If I don’t have to see my spending for a few weeks until I need to share it with you, it feels more manageable.” When I asked her how she felt sharing those expenses before our sessions, what she said highlighted why many struggle to keep up the habit of regular tracking, “When I see the expenses for that long period, I either feel like I’ve done really well or really badly. There’s no inbetween.” When you don’t face your expenses for a long time, you’re not doing much to increase your awareness gradually and you risk feeling the extremes of emotion when you only track in bulk every few weeks. You suddenly see a huge number of transactions which can be overwhelming. When you track daily or more regularly than every few weeks, you get used to any feelings of guilt and start to see these emotions fade as the tracking becomes a habit - an act you do without thinking.
“I don’t have enough time or energy. I’m always busy.”
Some people assume that you need to devote a lot of time and energy to tracking expenses. The truth is that you can devote as much time or energy as you like - the key ingredient is commitment. I’m not suggesting that it will take no time to track your expenses but the quicker you realise that it doesn’t have to take up a lot of time, the easier it becomes. You can start by saving all of your receipts and making a note either electronically or on paper of all your expenses at the end of each week. You can download your transactions from your online banking and go through each expense. You can also just pick up a pen and small notebook (try and find ones that you already own instead of justifying buying new) and start writing your expenses from the last day. Like any change, if you want it to happen you’ll need to make a commitment.
We like to throw around the word ‘busy’ especially in response to someone asking us why we haven’t done something. We play tag with the word busy. You might be familiar with this: Me: “I sent you a text, but you never got back to me.” Friend: “I’m sorry I didn’t respond, I’ve been really busy.” Sometimes I’m the busy one and sometimes they’re the busy one. Why does using and hearing the word ‘busy’ frustrate us? Because when we say we’re busy, we’re admitting that we haven’t made our friend a priority. When our friend says they’re too busy to respond to you, we feel like they haven’t made us a priority. By saying upfront that you’re too busy to track your expenses, you’re admitting that you not making money management a priority. One half of The Minimalists, Joshua Fields Millburn, argues that busy is just another word for being unfocussed. “Being focused, on the other hand, involves attention, awareness and intentionality. I don’t commit to a lot of things, but the tasks and people I commit to receive my full attention.” Ask yourself: how can I shift my schedule so that I can commit to tracking my expenses?
“I find more value focussing on increasing my income.”
Income provides your primary means for spending money. If you don’t have any kind of passive income or an inheritance to live off of, then you’ll need to find a way to earn money actively (by becoming an employee or setting up your own business) or passively (by living off of investments). While your income is important, if that’s the only thing you focus on, you’ll be at risk of lifestyle inflation - matching your spending to your income. Spending all of your income isn’t necessarily bad; feeling it’s compulsory to spend all of your income is. When we get a payrise it’s easy to justify getting a smartphone upgrade or booking a holiday. Before we know it we’ve already spent our payrise for the next year in just a few weeks. The problem with focusing solely on your income is that your needs and expenses - either consciously or unconsciously - inflate in line with any increases in income to the point where you no longer feel the benefits of a payrise. Before long, you’ll want another payrise. This doesn’t mean that you should ignore your income altogether - it plays a vital role in supporting your lifestyle and growing your wealth. You can only cut your expenses to a point on a certain level of income to grow your savings. Without knowing whether you’re spending that money on what’s important to you, it can be easy to just spend what you earn.
It’s also worth considering that there are additional costs that come with chasing your income. If you spend more time working to get that promotion, you’ll likely be more stressed, have less time outside of work to look after yourself and also have less time to spend with friends and family. No matter how much money you have, you cannot pay for good health. You have to work on it consistently which requires commitment and time. If all of your time is focused on earning an income, how do you expect to stay in good health? Regardless of what you earn, if you spend your entire paycheck you’re no better off financially in the long run. What’s a winning approach? Focussing your time on both increasing your income and managing your expenses.
“I already know what I spend my money on.”
Perceptions are a filter of reality. As human beings we all have perceptions. Without having a record of every expense, it’s difficult to prove whether we really know what we spend money on because we’re clouded by our own biases. Even after 10 years of tracking, I consult my expenses data regularly to see where I can make further improvements. I still catch myself wondering why I spent X on Y when I hadn’t done so in months prior. I also find myself wondering why I haven’t spent more on investing in my own education.
Tracking your expenses shouldn’t be treated as a one-time event. If you track your expenses even for just six months, you’ll find ways to be more efficient with your spending and ways to align your spending more with your values, as you learn more about yourself. I have looked at my expenses and noticed that I don’t spend enough money on investing in seeing friends regularly - relationships have a big impact on my overall wellbeing (I am constantly learning from my friends). I increased my allowance to spend on socialising for the month after and felt better for it. Those patterns in spending didn’t matter to me 10 years ago though. As I’ve gotten older my needs and wants have changed, so my spending priorities today look very different to what they were when I was a teenager. Tracking isn’t simply a way to beat yourself up about your spending. By increasing your awareness, tracking encourages you to spend your money on what’s important to you. Be flexible and accept that what’s important to you may be very different to what’s important to your friends. What’s important to you may also change with time.
This is a chapter from Money for 20-somethings. Get more chapters for free: