How to track your spending – Your first step to financial freedom

Before you start your journey to financial freedom, I should ask you, why do you want it? What’s the burning reason you’re willing to make sacrifices today for peace and freedom in the future? Is it to reduce stress and improve your health? Are you taking control of your finances to set a better example for your family? Or are you sick and tired of scrambling just to eek by at the end of the month?

Before you continue, take a minute and write down why this is important to you.

Next, I want to let you in on a little secret. Whatever the reason you wrote down, I want you to know that you’ll experience that and so much more.

How do I know? Nearly nine years ago my husband, Jeremiah, and I embarked on our own journey to create financial freedom in our lives. Less than three years later we were completely debt-free. Less than a year after that we were in a position where I was able to leave my corporate job which had become a poor fit. Shortly after that Jer started advancing his career, I started this blog, and so many other unexpected and incredible changes followed. And I believe it all started by taking control of our finances.

I wrote a whole post on how creating financial freedom has changed our lives. You can read it here. It might not be exactly the same for you. I share our story, not as the rule book to follow but to inspire you to create your own journey to freedom. With that in mind, here’s how our journey began.

Growing up, I was told there are three things you never talk about: sex, money, and politics. There are lots of other things we don’t talk about and really ought to start: mental health, relationships, emotions, limiting beliefs, and fear, to name a few.

When I started this blog, I swore to myself that I would talk about these things. Most of us weren’t taught these subjects in school. So unless we had caregivers who were savvy experts on these topics, we likely entered adulthood having no clue how to manage our finances, nurture healthy relationships, and play nice with people who had different political views.

These topics are too important to walk around with blinders on just because it’s uncomfortable. These subjects affect every other area of our lives. And so I’m going to talk about them and I invite you to do the same.

Let’s start with the cold hard truth. Personal finance statistics in America are not something to brag about.

• The US National Debt is more than $23 Trillion and counting. Up 3 Trillion dollars since I first published this post. I mean, I don’t even know how much a trillion is, so $23 trillion must be a lot.
• Nearly two-thirds of Americans don’t have enough savings to cover a $500 emergency. I don’t know about you, but I’ve had a lot of emergencies that were more than $500 throughout the course of my life.
• One-third of American adults report having ZERO dollars saved for retirement. Say you work on a team of 12 people. If they follow the average, that means four of them have nothing in a retirement account. That’s kind of scary considering the state of social security.
• The amount owed by an average U.S. household with this debt is more than $136,000.

That’s the bad news.

And here’s the good news. More and more people are creating a new story for their family’s financial future, like John and Lisa. These are normal people who didn’t grow up with trust funds or win the lottery.

Since I’ve been sharing our story during the past four years, I’ve met dozens of people like John and Lisa on a similar journey. And I truly believe that financial freedom is attainable for anyone. Some people may have longer and windier journeys, but it is attainable.

It’s Never Too Late

There are some topics that get lots of action whenever I bring them up on social media. One of those topics is feeling behind. I can only imagine that it’s gotten worse in this digital world where everyone broadcasts their highlight reels 24-7. Just as many people in their 20s feel like they’re behind as people in their 40s and even people their 60s feel like they missed the mark.

But I’m here to tell you that you’re exactly where you need to be and it’s not too late. The moment you decide to change your future and take action, things will come together more quickly than you plan. If you commit to the long-term reward and remain diligent, you’ll find financial peace before you know it.

I’m not saying these things because I read some personal finance books and watched a Suze Orman special on PBS. I’m saying this because Jer and I have actually lived it.

We’ve felt behind. Heck, we still feel behind some days. We’ve felt like we weren’t smart enough, skilled enough, and didn’t make enough money. And even after reaching a number of financial goals, imposter syndrome still creeps in.

Jer and I are just like everyone else. Except that we decided that things were going to be different. We set goals, worked as a team and stuck with them. It’s never too late and I know you have what it takes to do the same and create your own version of financial freedom.

Our Journey to Financial Freedom

Join me as we travel back to the year 2010. Up until then, we were doing ok with money. We were saving for retirement and didn’t have any student loans or credit card debt. I have always been a saver and Jer was more of a spender.

I had spent the previous decade trying to get Jer to be more of a saver. I bought audiobooks on CD. I tallied up how much a year’s worth of his Chipotle habit would be worth in 30 years if invested in a mutual fund. I begged and pleaded but the time wasn’t right I guess.

Around this time, Jer’s lovely Uncle Eric bought a book for all of his brothers and sisters for Christmas. Eric shared a heartfelt story about how the book changed his life. He shared his hopes and dreams for sharing it with his brothers and sisters. Jer’s oldest uncle had already read the book and kindly offered his copy to Jer, which Jer eagerly accepted.

It must have finally been the right time because Jer devoured the book. Now he was the one coming to me saying, “You’ve got to read this book. We’re doing a lot of things right, but we could be doing so much better.” To be honest, I was slightly annoyed. This is what I’ve been trying to tell him for the last 10 years.

At the time I was traveling a lot for work. Since I had so much windshield time, I decided to pick up the audio version of a similar book. As I listened, my mind was blown. I always intended to be wealthy and was well on my way, but this, this was something that never occurred to me.

I officially had the debt-free itch.

We slowly started cutting our expenses, which led to tracking, which led to a budget, and the rest is history I guess.

How to get started

Building wealth is simple–spend less than you make. Click To Tweet

Building wealth is simple–spend less than you make. While the concept is simple, it’s not always easy to do. There are societal pressures and familial expectations. We’ve got our status to maintain and we’ve become comfortable with our routines and little luxuries. But while it’s not always easy, it is always worth it.

In order to spend less than you make, you need to know how much you’re actually spending. This is a simple step, but it’s going to require that you be diligent and honest with yourself.

The best way to figure out how much you’re spending is to track every dollar you spend over the next 30 days. In John and Lisa’s story, John calls it reverse budgeting. And that’s exactly how they began their journey too.

To this day I track every dollar we spend. I use an app to track daily expenses and enter everything into an Excel grid each month. I have detailed records of our income, expenses, and investments going all the way back to 2011.

This came in really handy when we were making plans for me to leave my corporate job and helps as we make projections for future plans. It’s also a great way to see the progress we’ve made and to celebrate our accomplishments.

I will always use Excel because I love the flexibility and the data I’ve compiled over the last nine years. If you’re not an Excel user, I’d suggest using an app. Here are some popular free apps as of the November 2019 update of this post.

• Every Dollar https://www.everydollar.com/
• Mint https://www.mint.com/
• Pocket Guard https://pocketguard.com/
• Albert https://albert.com/

There are also plenty of great paid apps and software to help you on your journey to financial freedom. Do some digging. Ask around. And find one that’s right for you.

Tracking your spending for 30 days will give you a good idea where your money is going but it won’t give you the full picture. We all have bills that fluctuate throughout the year like gas, electricity, and water. We also have bills that are paid on an annual or biannual basis, such as homeowner’s insurance, auto insurance, and property taxes.

Think about which of these expenses you have. Then go through your bank statement or ebills and add up the annual total for each category. Then divide that by twelve to get your monthly average. And add this to your 30-day tally.

I like my data very detailed. My husband, Jer, prefers to keep it simple. Think about what you will be able to maintain long-term. If you’re not into details, keep it simple, or you won’t do it. You can change your system at any time. Just do what works best for you.

Since writing this original post, I listened to a very detailed personal finance book. It’s a big book but I think it would be great for anyone who is truly ready to make a change. I recently recommended it to my oldest nephew because it talks a lot about the whys of money.

But for the purpose of this post, here’s why I mention it. I just said that if you’re not detailed, don’t get too granular because you won’t stick to it. And I believe that. But in the book, the author says the more detail the better.

She shared an example on one guy who was spending 20 percent of his income on SHOES! Had he tracked the way I do with all clothing and shoes in one category, he probably wouldn’t have found this exorbitant expense.

Here are some categories you might consider tracking:

Savings

• Retirement
• Health Care
• Emergency Fund
• Car Fund
• Vacation Fund
• Home improvements

Charitable Giving

Housing Costs

• Mortgage or Rent
• Utilities
• Water
• Trash
• Gas
• Electricity
• Internet
• Phones
• Television
• Internet Security/Online Backup

Household Expenses

• Groceries
• Beverages
• Household and Cleaning Products

Personal Wellness

• Health and Beuty
• Hair Cuts
• Clothing
• Gym Memberships

Taxes

• Property Taxes
• Federal Taxes
• State Taxes
• Tax Preparation

Insurance

• Homeowners
• Life Insurance
• Health Care
• Personal Articles

Home Maintenance

• Home Improvement
• Repair
• Gardening and Landscaping

Transportation

• Car Payments
• Auto Insurance
• Gas
• Registration
• Repairs
• Parking
• Public Transportation
• Bike repair and maintenance

Entertainment

• Dining Out
• Movies and Events
• Travel
• Hobbies and Equipment

Education

• Classes
• Books
• Seminars

Work Expenses

• Uniforms
• Fees and Dues
• Day Care

Gifts

Other

Is there anything I missed? Please comment below and I’ll add it to the list.

After 30 days, set aside some time to analyze your data. If you’re married, make sure to include your spouse. Consider the categories you tracked as well as the non-recurring expenses we discussed above. Some of the apps I mentioned will do much of the work for you.

Once you discover where your money is going, you’ll feel a renewed sense of empowerment. For example, a friend of mine discovered that he was spending more than $1000 per month on restaurants. That was a nice chunk of change he was able to redirect and use to build up what is now a multi-million dollar business.

Wants VS Needs

As you analyze each category, decide whether it’s a want or a need. Each person has a different opinion of what a need is. Jer insists that cycling socks are a need. I’m standing firm in my opinion that they are a want. So we compromise, but only because we’re debt-free.

For the purpose of this exercise, we’ll define needs as expenses that are necessary for your survival. And wants are nice to have, but you can survive without them.

In the categories you identified as needs, ask yourself which of these expenses can be reduced.

• Can you shop for insurance and cut your homeowners, health care, and auto insurance costs?
• Could you call your cable, internet, and wireless phone providers to negotiate better rates?
• Would you be willing to sell that car you have payments on and trade it for a bike and a bus pass?

There’s a lot that can be done here. Leave no stone unturned. Check out this post for more ideas.

Now for those wants. If you’re like most people, you’ll find all sorts of extra money here. When we were paying off our mortgage, we quelled our wants by not buying anything new. (Something I’m trying to get back to.) Restaurants and travel were a rare treat. We essentially funneled every penny from our wants toward paying off our debt.

Keep in mind that this isn’t forever. It only took us two and a half years to pay off our mortgage. We were willing to give up almost everything to get it done fast! Ask yourself what you are willing to give up now so that you can enjoy peace and freedom later?

Ask yourself what you are willing to give up now so that you can enjoy peace and freedom later? Click To Tweet

When analyzing your wants, think about the categories that truly bring value to your life. Be okay with spending in those areas and learn to say no to the others. For example, it’s important for us to spend money on healthy food. I’m not willing to cut that category because my health is more important than achieving a financial goal.

Is financial freedom right for you?

I’m going to be honest with you. This is work. There are apps and services that will make it easier for you. But you’ll need to find the desire and discipline to keep going. We dealt with naysayers and frugality fatigue which would have made it easy to quit.

Remember in the beginning when I asked you to write down why you’re doing this? Let’s get back to that.

If this is going to work, you will need to have a good reason to keep going. Is your why for creating financial freedom something that will keep you going even when it gets hard? If not, spend some time reflecting on why you really want to do this.

Once you begin your journey to financial freedom, it will go by quickly. You’ll probably even learn to love the lifestyle changes you make. So many of the things we cut from our budget were never added back.

At the end of our lives, I believe that the things that truly matter are the little things. Nothing you could buy will feel as good as financial freedom will feel. So remember your why and let’s get started!

Ready to change your financial future? Check out these posts to learn everything you need to know to go from surviving to thriving.

Step One – Figure Out Where The Eff Your Money Is Going
Step Two – Create a Budget That Works For You
Step Three – Save For Financial Freedom
Step Four – Ditch Your Debt
Step Five – Build Wealth on Any Income
Step Six – Achieve Your Goals As A Couple

Editor’s Note: This post was originally published in April of 2017. It has been completely revamped for accuracy, comprehensiveness, and readability. Please enjoy and feel free to share this newly revised content.