By Ryan Graves on Dec 5, 2019
With apps from Tiller, Mint, YNAB, or another app off of this list, it is easier than ever to track your spending habits. The real question: What do you do with all this data once you have all your accounts linked up? Tracking your money means you can figure out where it is all going, and allowing you to cut back where you need or want. Are you spending too much money eating out? Establishing an amount to use for restaurants will help you reign in your spending.
Ultimately, tracking and categorizing your spending habits will help you gain a better sense of control around your money. It is crucial to not only categorize your spending habits but to also record the trends in those categories. It is always a very revealing and often humbling activity as we never remember how much we spend in every category. It can also be very liberating, as taking control of your spending will put you at ease with your finances.
Needs vs. Wants
It is easily the simplest and most important way to view your spending after you have it categorized. Simple examples of needs are rent or new tires, but could also be an airline ticket to see family. Examples of wants are eating out or Disney+, but could also be a gym membership. I believe that working out and general health is part of a sound financial plan. Still, my gym membership that features a sauna among other luxurious amenities is more of a 'want' than the $10 a month alternative.
It is easiest to eliminate the wants. We can usually reduce the convenience of takeout, avoid the appetizer, or order fewer drinks. Needs are much more difficult to control. For example, we can only cut back on rent by moving or getting a roommate. Both solutions are time-consuming and require a significant adjustment to living standards. The more needs that you have, the less ability you have to cut back on your spending.
Recurring vs. the Infrequent and Unpredictable
This categorization gets a little tricky for all of us and is the most difficult to track and plan. It can be easy to look at a couple of months of spending data and think you have a grasp of your finances. Did you remember your Amazon Prime Membership? It is essential to look at a full year’s data to get the best picture of our spending habits. We may think of a vacation as a one-off expense, but is it? Also, it is crucial to keep recurring and unpredictable payments in mind, such as car repairs and medical expenses, as well. Getting a good look at recurring and infrequent payments can help us set aside money for when they occur. I use Google Calendar to set reminders for upcoming quarterly and annual expenses so that I don’t forget.
Fixed vs. Variable Spending
Seems pretty straightforward. Fixed: car payment, rent or mortgage, and insurance. Variable: groceries, travel, clothing, and restaurants. It is much easier to cut back on the variable as they are the more immediate expenses and actions we have. Much easier to not go to Chipotle for the third time this week than get rid of your car.
It is the best way to evaluate your spending, but it takes a little more effort at first. The first thing that you need to do is figure out what your values and goals are first. Once you have that figured out, you can begin to ask yourself if each of your purchases supports your values and goals. It is a powerful method because it may allow you to decrease or INCREASE your spending in a given area. Some of my clients have expensive hobbies, but those hobbies keep them genuinely happy, so it is important for them to spend their money on those hobbies. I often advise that clients should spend their money where they spend their time outside of work. For instance, you can decrease spending on the convenience of eating out but increase spending on eating out when you do it with friends. The whole point of a values-based is to put some intentionality behind your spending. Being more intentional with your money will help you reach your goals.
Using a financial planner can help you figure out your spending, planning, and goals. A planner will help provide clarity and accountability around your plan so that you can follow-through experience success. Bemiston has free tools to use that can help you get started in figuring out your finances. Or, you can set up an appointment by contacting Bemisotn.
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