Tracking your expenses over time can be a real eye-opener. You'll see exactly where you are spending your money and whether or not it aligns with your goals. This gives you a level of control that allows you to make adjustments to better serve your needs and wants.
One Reddit user shared their experiences, and the lessons they learned can be applied to anyone's life.
Read more
- See the 7 best budgeting tools.
- Here are the 5 benefits of budgeting.
- Check out the HALT method to control your spending.
Inflation is hard to spot in the short term, but undeniable over the long term
Inflation is sneaky. Sure, an extra 50 cents for a loaf of bread or a $1 more for frozen dinner doesn't feel like much in the moment, but after a year you'll start to see those pennies and dollars add up to a significant sum. Tracking your spending lets you see what you are spending this year compared to last year. This can help you make better decisions, rather than falling back on old habits that may or may not still be within your budget.
Reddit user Auuuff said, “With the same expenses, the same quality of life level, without any significant changes, I can’t fit my budget anymore.”
Expert Advice: How to deal with inflation
Ben Waterman, CEO of Strabo, a consumer wealth management platform, suggested building in inflation as part of your budget. He said, “Firstly, let's not make it too complicated. Assume that costs will be rising in perpetuity, and build that into your budget. Beyond this, you should revisit fixed expenses annually so that you keep track of increases. Finally, add a small buffer to things like groceries and utilities that are prone to regular changes. If this pushes your budget into the red, look for “pressure release valves” such as subscriptions or discretionary spending that you can trim if necessary.”
Normal months aren't normal
They also noticed that there is no such thing as a normal month. They said some months they were 30% over budget due to car repairs and gifts and medical expenses always blew the budget. Their advice is to build a buffer for these expenses. Car repairs and gifts are just a normal part of life, not surprises.
Expert Advice: Dealing with surprise expenses
Surprise expenses are an opportunity to adjust your budget. When something pops up, say a car repair, create a line item in your budget for “car repairs” and begin contributing to it monthly. In the future, you can use that category to cover future car repairs. If you are continually going in the red here, increase the monthly contribution until that category runs more smoothly.
Waterman said, “A crucial tenet to the personal finance canon: treat surprises as inevitable, and build a durable emergency fund so that these don't derail you.”
Tracking lets you see where you actually spend your money
This Reddit user realized that they were spending more on “cheap habits” than they thought. Items like food delivery and coffee were draining their budget in ways they hadn't realized.
When you see your spending in black and white, it brings your true spending into perspective. You can't convince yourself that $5 doesn't matter. When you realize that your spending on DoorDash is keeping you from going on vacation, or meeting your savings goals, you'll be able to adjust that so you can start meeting your goals.
Expert Advice: How to bring your spending into alignment
When you start tracking your spending, it's common to find that you are spending more than you thought in areas that don't matter to you. When this happens, it's an opportunity to divert some of those funds towards your goals.
Waterman said, “The idea isn't to cut back on everything. Cut ruthlessly in the areas you don't care about, so you can continue to spend more freely when you do. A budget is something that should reflect your values, not some arbitrary idea of discipline.”
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Tracking prevents impulse buying
They said, “This was unexpected, but knowing I'd have to log purchases made me think twice about random buys.”
They're right, knowing that you'll have to account for every purchase makes you stop to think before tapping your credit card. This could save your hundrends of dollars a month without impacting your quality of life.
Expert Advice: How to stop impulse shopping
Impulse purchases are exactly that, impulses. They are unlikely to have a meaningful impact on your life, and if you wait, you'll usually find you no longer want that item.
Waterman said, “Make it easy by creating friction. Wait 24 hours to make discretionary purchases, remove saved cards from apps, and only make large purchases on your computer. The thing about impulse spending is that it thrives on speed. Slow things down and it usually disappears.”
Adjustments are part of life
Your first budget will not be perfect. It will be a best guess and no more. Having to make adjustments as you learn what your true spending habits is not a failure of you or of your budget. It's just part of the process.
The Reddit user said, “Do not set hard limits without knowing your actual spending. First several months must be “testing” months. You should get to know your habits, your money, your expenses. Do not set unrealistic limits. You will be disappointed when you go over that number. Instead, be curious about your spending, investigate them. ”
Expert Advice: How set a budget when you don't know your spending
Creating a budget when you don't know what you're currently spending is tough. Give yourself grace and realize that adjustments aren't failure.
Waterman said, “Start slow and messy. Spend the first month not changing anything, just tracking where your money is going. The results will likely surprise you. Create broad buckets first: housing, food, travel, fun, and then refine later. A messy, imperfect budget that you use beats a perfect one that you won't every time.”
Aim for control, not peace of mind
The Reddit user said they don't think you can achieve peace of mind through budgeting alone, but having control of your finances can bring stability to your life. They were going through a tough time and tracking their expenses helped them have some control over their life.
“Those two years were tough for me, and my expense-tracking habit was a small part of my stability. ”
Expert Advice: How to bring peace of mind to your finances?
A budget is a great start and will likely make you feel better about your finances. You'll start spending your money where it matters most and have fewer financial surprises. But to truly have peace of mind, you'll need to take some extra steps.
Waterman said, “[Budgeting] brings a sense of control, but the only thing that can help you sleep properly at night is a safety net. A 3-6 month emergency fund, good insurance, and a solid long term plan. Now you can handle both today's bills and tomorrow's surprises. Good luck!”
When can you stop tracking?
On a different thread, another Reddit user asked, “At what point can you stop tracking your expenses?” The answer, never.
Tracking your expenses brings clarity and accountability to your financial life. If you stop tracking, you will slowly slide back into old habits. Your long-term financial lives are made up of a series of everyday choices. Using tools like YNAB, can help make tracking easier, but if you want to stay in control of your money, you'll need to stay on top of your daily transactions.
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