2280: 5 Reasons You Need To Track Your Spending by Chris of Keep Thrifty on Personal Financial Goals

[00:00:00] [SPEAKER_00]: This is Optimal Relationships Daily, 5 Reasons You Need To Track Your Spending by Chris of

[00:00:06] [SPEAKER_00]: Keepthrifty.com. Hello everybody! Happy Sunday and welcome to another weekly bonus episode

[00:00:12] [SPEAKER_00]: of ORD. I'm Greg Audino and this week I'll be sharing a post with you from Optimal Finance

[00:00:17] [SPEAKER_00]: Daily, an article which covers the value in tracking our spending, something that

[00:00:23] [SPEAKER_00]: is highly important for singles and couples alike to consider. So listen closely, here

[00:00:27] [SPEAKER_00]: is Diana with the post and her commentary as we optimize your life.

[00:00:35] [SPEAKER_01]: 5 Reasons You Need To Track Your Spending by Chris of Keepthrifty.com

[00:00:42] [SPEAKER_01]: Whatever your goals are in life, there's a reasonable chance that money plays an important

[00:00:46] [SPEAKER_01]: role. Whether it's having enough to fund a dream vacation, taking a one-year mini-retirement

[00:00:53] [SPEAKER_01]: or reaching full financial independence and retiring early, understanding your finances

[00:00:58] [SPEAKER_01]: is key. I'd go as far to say that tracking your spending is one of the most important

[00:01:04] [SPEAKER_01]: activities you can do during your journey to achieving your dreams. With input from my

[00:01:10] [SPEAKER_01]: Twitter followers, here are the 5 biggest reasons everyone should track their spending.

[00:01:15] [SPEAKER_01]: 1. To Understand What You Spend

[00:01:19] [SPEAKER_01]: Quote, Now You Know, And Knowing Is Half The Battle

[00:01:24] [SPEAKER_01]: G.I. Joe Let's start with the most basic answer. By tracking,

[00:01:29] [SPEAKER_01]: you have the ability to actually measure your spending. That measurement lets you know whether

[00:01:35] [SPEAKER_01]: you're spending more in a month than you're bringing in and it lets you compare your actual

[00:01:39] [SPEAKER_01]: spending to a budget if you've got one. Tracking also gives you an early warning system

[00:01:45] [SPEAKER_01]: about leaks in your spending habits. Tracking is knowledge and knowledge is power.

[00:01:51] [SPEAKER_01]: But knowledge isn't much good if you don't put it to use.

[00:01:55] [SPEAKER_01]: Tracking can get you a whole lot more if you do it right. Let's see how.

[00:02:01] [SPEAKER_01]: 2. To Reduce What You Spend

[00:02:03] [SPEAKER_01]: Quote, That Which Is Measured Gets Managed

[00:02:08] [SPEAKER_01]: Peter Drucker Tracking gives insight into areas of opportunity,

[00:02:13] [SPEAKER_01]: areas where you don't realize how much you're spending until you see the total in

[00:02:17] [SPEAKER_01]: big, bold numbers. Knowing how much you spend on certain categories can help you turn savings in

[00:02:23] [SPEAKER_01]: those areas into a game. Can you beat your utility bill from the prior month?

[00:02:28] [SPEAKER_01]: Customizing how we tracked our spending to separate out good spending from bad spending

[00:02:34] [SPEAKER_01]: helped us drop our grocery bill by $270 a month. Not too shabby, huh?

[00:02:40] [SPEAKER_01]: Beyond this, tracking can even passively help reduce your spending by acting as a deterrent.

[00:02:46] [SPEAKER_01]: Let me explain. In dieting, using a food journal can discourage you from scarfing down a free

[00:02:52] [SPEAKER_01]: doughnut in your Monday morning meeting. Having to write down that you consumed 350 empty calories

[00:02:59] [SPEAKER_01]: doesn't feel that great. In finances, tracking your spending can have a similar effect,

[00:03:04] [SPEAKER_01]: discouraging you from making those frivolous purchases. Do you really want to have to

[00:03:09] [SPEAKER_01]: enter that $20 you blew on lottery tickets this week?

[00:03:12] [SPEAKER_01]: Number three, to build a budget. If you don't have a budget already,

[00:03:18] [SPEAKER_01]: tracking is a great place to start. Using your actuals as a starting point and figuring out

[00:03:24] [SPEAKER_01]: where you can improve is a whole lot better than plugging random numbers in a spreadsheet and

[00:03:29] [SPEAKER_01]: crossing your fingers. Tracking your spending is necessary to build an accurate budget

[00:03:34] [SPEAKER_01]: because it can help you answer the tough questions. My trips to the vending machine

[00:03:40] [SPEAKER_01]: don't really add up to that much, do they? What occasional or annual expenses am I forgetting?

[00:03:46] [SPEAKER_01]: And how much should I spend this year on one-offs that I probably won't spend again?

[00:03:50] [SPEAKER_01]: Or will I? Before jumping into our one-year mini retirement, we used 18 months worth of our

[00:03:57] [SPEAKER_01]: spending data to help build out an accurate mini retirement budget. Because we used actual

[00:04:03] [SPEAKER_01]: spending data, we had a high level of confidence that we could actually meet our budget,

[00:04:07] [SPEAKER_01]: something that's critical when taking a big financial leap.

[00:04:12] [SPEAKER_01]: Number four, to estimate expenses for the future in particular retirement.

[00:04:18] [SPEAKER_01]: Beyond building a budget for this month or this year, tracking your spending can help you build

[00:04:23] [SPEAKER_01]: a budget for when you permanently retire. After all, to retire, you'll need to know that

[00:04:28] [SPEAKER_01]: your investments are going to reliably cover your annual spending. Investment firms often advise

[00:04:34] [SPEAKER_01]: you to figure this out by applying some multiple of your pre-retirement income,

[00:04:40] [SPEAKER_01]: but that doesn't make any sense, does it? If you make $100,000 a year before retirement

[00:04:45] [SPEAKER_01]: but put 50% of that every year into savings, you're going to need a lot less in your retirement

[00:04:51] [SPEAKER_01]: accounts than someone who only puts 5% a year into savings. Snide aside, of course they advise

[00:04:58] [SPEAKER_01]: you to do this. It encourages you to invest more than you need, which means they get to

[00:05:03] [SPEAKER_01]: charge you more. By tracking your spending, you can use those numbers to build a realistic

[00:05:08] [SPEAKER_01]: post-retirement budget so you can retire with confidence. Number five, to align your lifestyle

[00:05:16] [SPEAKER_01]: with your values. Finally, tracking can help you understand and adjust how well your lifestyle

[00:05:23] [SPEAKER_01]: reflects your values. If you keep saying that travel is really important but can never seem

[00:05:28] [SPEAKER_01]: to afford to buy a plane ticket, maybe you're subconsciously putting other short-term things

[00:05:34] [SPEAKER_01]: higher on your values list. By tracking, you can find these mismatches and finally stop depriving

[00:05:40] [SPEAKER_01]: yourself of the things that you truly want. We've used this to free up more money for our

[00:05:46] [SPEAKER_01]: family road trips and our recent trips to Hawaii by spending less on home decor and eating out.

[00:05:52] [SPEAKER_01]: How we track. One of the most important tools in improving your finances is a tracking

[00:05:58] [SPEAKER_01]: method that works for you. We've created a web app called Thrifty that helps you track your

[00:06:03] [SPEAKER_01]: income, taxes, spending and savings. We designed Thrifty as a manual tracking tool because manual

[00:06:10] [SPEAKER_01]: tracking helps you get a deeper understanding of your finances and can even act as a deterrent

[00:06:15] [SPEAKER_01]: from frivolous purchases. Every time you spend something, you'll see the immediate impact to

[00:06:21] [SPEAKER_01]: your monthly total in Thrifty. That view is powerful. We know we've been using Thrifty for over two

[00:06:28] [SPEAKER_01]: years and it's helped us immensely in improving our spending and our overall life. You just listen

[00:06:37] [SPEAKER_01]: to the post titled, Five Reasons You Need To Track Your Spending by Chris of KeepThrifty.com.

[00:06:44] [SPEAKER_01]: Now this is my kind of article. I get asked all the time what's the one thing people should

[00:06:51] [SPEAKER_01]: do to start getting a handle on their finances. I've said it before and I will say it again,

[00:06:57] [SPEAKER_01]: track your spending. If you don't know where your money is going now, it's going to be really hard

[00:07:04] [SPEAKER_01]: to give it new direction. It's an exercise in growing awareness and mindfulness around your

[00:07:10] [SPEAKER_01]: money and spending. And as Chris explains in this article, this simple act of tracking can

[00:07:16] [SPEAKER_01]: contribute to changing problematic spending behaviors. I mentioned a few episodes ago that

[00:07:22] [SPEAKER_01]: I'm helping a friend get a handle on her finances and the thing we're working on at this moment

[00:07:27] [SPEAKER_01]: is tracking spending. When we first met, we built a completely unrealistic budget because she had

[00:07:34] [SPEAKER_01]: no awareness of where her money was going so she way underestimated how much she spends in

[00:07:40] [SPEAKER_01]: a month. In our follow up meetings, when we would review her income and expenses and reconcile that

[00:07:47] [SPEAKER_01]: with how much was left in her bank account, it would be off by hundreds of dollars. Why? Because

[00:07:54] [SPEAKER_01]: she wasn't tracking her spending comprehensively and in the exact moment of making a purchase.

[00:08:01] [SPEAKER_01]: We're already seeing right now that more accurate tracking has cut her problematic spending

[00:08:07] [SPEAKER_01]: in half because she's learning how to spend intentionally versus mindlessly swiping her

[00:08:13] [SPEAKER_01]: debit card. We also added in another layer of accountability because once a week,

[00:08:19] [SPEAKER_01]: she reports to me on how much she spent. Then I show her as she's tracking against this budget

[00:08:25] [SPEAKER_01]: that we're continuing to refine because she knows that she's going to tell me every week

[00:08:31] [SPEAKER_01]: about her spending. She can't help but think about it more when she's making a purchase.

[00:08:35] [SPEAKER_01]: So if you think that an accountability buddy will help you when it comes to monitoring your

[00:08:39] [SPEAKER_01]: spending, go find one. That should do it for another edition of Optimal Finance Daily.

[00:08:45] [SPEAKER_01]: I'll be back tomorrow as usual so I'll see you there on the Wednesday show where your optimal life awaits.