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When I suggest that clients track their spending, I often hear responses such as, “Every single dollar? You’ve got to be kidding! I don’t have time for that. If I spend so much time tracking, I won’t have time for anything else!”
Believe me, it might be worth it! My suggestion: For at least 90 days, track every dollar you put in a vending machine, every swipe of your debit card, every charge posted on a credit card statement, every recurring transaction that hits your bank account, and every item bought online with PayPal. The information will be very telling.
It may seem time-consuming and difficult, but with today’s technology, tracking is easy. Companies such as Mint (owned by Intuit, which also owns Quicken) or Morningstar's HelloWallet (which might be available for free in your workplace) can aggregate your bank accounts, debit card and Paypal transactions, and credit card payments. With simple electronic tools, the only thing you need to track manually is cash.
Getting a solid idea of where your cash is flowing is invaluable.
Here are 7 things you might want to start doing once you track every dollar you spend, according to my clients and personal experience:
- Cook more.
Whether you eat to live or live to eat (like me), you may notice a big chunk of your take-home pay going toward convenience food. According the Bureau of Labor Statistics, the average U.S.household spends 59.8% of their food budget on eating at home and 40.2% on food out of the home. Since a food budget can generally be 12-15% of a household’s total expenses, preparing more meals at home can mean substantial savings.
- Brown bag it more often.
This relates to the above point, but I feel it deserves its own category. When I first started tracking my own spending, I was shocked to see how much I spent on lunches out. A quick lunch can cost up to $12 in the food court at my office building. If this is an everyday habit, which it is for many, that’s $60 a week, or $240 a month. That’s expensive for what you’re getting! Bringing a lunch or stocking up on healthy and inexpensive food items in the community refrigerator can save you hundreds of dollars a month.
- Buy less (especially impulse items).
A bag of chips or popcorn and a soda at a convenience store may not seem like a big deal, but little things add up. A magazine, a candy bar, and some gum at the checkout counter added to your order a the grocery store can cause “checkout price creep.” How much of your take-home pay is slipping through your fingers without you realizing it?
- Use what you have (or drop your services).
My friend John traveled to Africa a few years ago and added an international calling plan to his phone for the trip. The $30 he spent that month saved him quite a bit in international calling and texting. But he forgot to cancel it and had that extra charge on his account many times before he realized it.
Paying close attention to your bills can help you determine whether you are paying for services you aren’t using, such as a gym membership, a music channel, a movie service, or any other monthly subscription service that gets automatically deducted from your checking account or credit card. One way to determine if you want to keep the subscription is to consider the annualized cost.
For example, a premium version of LinkedIn costs $59.99 per month, or about $720 per year. Would you write a check today for $720 in order to potentially make new professional connections more easily? If so, this service might be worth it. If you wouldn’t pay the annual amount for a service, cancel it.
- Have quicker turnaround time.
If you are keeping a close eye on your work expenses, you’ll notice the lag time between when you incur the expense, when you turn it in for reimbursement, and when you get paid.
Since you are using your personal credit card, you want to make sure you are within the grace period your bank allows so you aren’t paying interest on those expenses.
Generally your company is not going to reimburse you for interest you pay on your credit card, especially when you may not have been timely with your reports. When you see the charge hit your bank account, you are more likely to turn in that expense report right away. The sooner you submit it for approval, the sooner you’ll get reimbursed.
- Buy quality items.
Often, my husband will buy something of lesser quality because it costs less, only to have to replace it the following year. He may have spent less in the short term, but ends up paying more in the long term.
Take, for example, binoculars. We are fortunate enough to live in an area where we see wildlife from our deck. Last night we watched two elk running in a meadow, apparently just for fun. Nothing was chasing them! We followed their movements with two pairs of so-so binoculars, which meant we could see they were elk but we couldn’t see the expression on their faces as they frolicked. If we’d had one pair of really great binoculars instead of two not-so-good quality, the experience would have been even more amazing.
Now before making a purchase, we determine the “cost per use” to see if it might be better to spend more on an item that will give us great value. For example, if we use binoculars every night for five years, that would be 1,825 uses. For a $1,200 pair of binoculars, the cost would be about 66 cents per use. Since field glasses don’t wear out, and we’d use them well into old age, the cost per use could go down to 10 cents per use in our lifetimes. Quality binoculars would be worth it.
- Grow wealth.
As you track each dollar you spend, it's clear just how many expenses target your hard-earned dollars. That may translate into a lack of savings.
Do you want to get an idea of how much you have earned over your career to see how good a saver you are? Your can find your earnings history on your Social Security statement at SSA.gov. If you are a high earner, it won’t be perfectly accurate, since there is a maximum wage base. For 2016, Social Security taxes are only taken out of $118,500 of income. Either way, it might be interesting to compare how much you’ve saved and invested versus how much you’ve earned in your career.
Are you satisfied with what you see? If not, bump up your savings by at least 1% this year, and set yourself up on auto-escalation program with your employer to increase your 401(k) contribution each year.
Where are you spending your hard-earned money? The only way to really know is to check. Track your spending for 90 days and let us know what you find in the comments section.
