Money Tip – Know Your Spending

In my last money tip on calculating your net worth, I shared a spreadsheet that I use to track my net worth.

This week I want to share with you another key money tip on the importance of knowing your spending.

I’ve worked with a lot of people over my 20-year career and regardless of age, sex, income, marital status I have found there is one common trait of financially successful people:  they live within their means.

The foundation to living within your means is to simply know how much you spend month to month.  It is one of the key habits to take control of your money. There’s a spending epidemic going on out there because it’s now easier than ever to live beyond our means and spend more than we make.  Spending and debt have really gotten out of control.

Do you have a spending problem?

How would you know if you are overspending or not if you never took any steps to track your spending in some way, shape or form?

Some people might assume this is where budgeting is a form of financial compromise. Not me. I don’t like the word ‘budgeting’ just like I don’t like the word ‘dieting’ because they both imply restriction of behavior. I’m not suggesting everyone needs to budget. Rather, I am suggesting that everyone needs to know how much money is spent each and every month. If you have a spending problem, then you need to budget your money. Just like if you have an eating problem, then you have to diet.

Successful people simply live within their means. How can you do that if you don’t know what your means are costing you? Take the time to figure out how much money you spend and then devote time to making this a regular habit. I promise you it will go a long way to securing your financial future.

Do you know your spending?

Most people don’t know how much money they spend on a monthly or yearly basis. The ones that think they know how much they spend sort of know but typically underestimate.

Very few people know what they are spending and the ones that do, typically are in pretty good financial shape because they track and understand it.  They are consciously aware.

Tracking expenses takes effort, conscious awareness and ongoing work. Maybe that’s why most people don’t track expenses (or calories unless they want to lose weight). The trick is to keep it as simple and effortless as possible. The key is to turn it into a good life habit.

Ways to track your spending

There is no shortage of ways to understand and track your spending:

  1. You could write down everything you spend.  Writing it down makes you more consciously aware of what you are spending and how much.
  2. You could use software like Quicken Personal Finance software I don’t use these programs so I can’t really comment on their functionality.
  3. You could use online tools.  One of the most well known is which is now available in Canada .  Tom Drake at Canadian Finance Blog is more familiar with Mint than I am so here’s a good interview with the Mint’s Aaron Patzer .
  4. Lastly, you can use a spreadsheet.  This has always been my approach so I thought I would share the version that I use.  You can download it below.  The document also has other versions that some of my clients and colleagues have used.

Download Budgeting and Cashflow spreadsheets (2385)

My two cents

It matters less which approach you use.  They all work.  The key is to use one and stick with it.  You goal over time is to keep track of your spending to the point where it becomes automatic or second nature.  Develop this habit and it will be one of the most important financial habits to future financial success.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

5 Responses to Money Tip – Know Your Spending

  1. You’re absolutely right, Jim. But one thing that I would add regarding spending is that some people feel ‘happy’ when they’ve purchased a new toy, piece of clothing, car, phone, or whatever. What they fail to realize is that so-called ‘happiness’ derived from acquisition of material goods is fleeting, and soon they need some other new thing to satisfy this need–the more you spend the happier you’ll be, and the more you’ll spend. It becomes a vicious cycle.

  2. Jim, these are all great tips, but I agree that any of the methods will work, but the key is in doing them and having it become habit. Your comparison to dieting is spot on.

  3. I’m 20 years-old and the Budgeting & Cashflow Spreadsheet is great for keeping track on where exactly I’m spending my money. It’s helping me stay on track, Thank you so much!

  4. We are now retired and financially secure. But we still very much understand where our money goes, the value of that money, and how to maximize it’s value.

    Even today, we purchase staples, food and personal care, at Costco. So yes, I do have to buy a years supply of deodorant. But the upside is that this results is a saving of about 30 percent per package based on the normal sale price that I would buy one package at. When we look at this we say where else could we get a 25 plus percent after tax edge on an investment?

    Multiply this by what we spend on a year on these types of staples and the number becomes significant. Not to mention the savings on some non staples items.

  5. As Recently retired @62 and taking my CPP with my wife still working. I have the challenge of reducing expenses. Like the commercial says “You are richer than you think” Looking at where the money was going I have found at least $350.00 per month in expenses that can be eliminated. My life insurance can be cut back to 2 policies.One for me and 1 for my wife instead of 2 @ $100,000 for me.This Saves $80.00 per month and putting $8000 in my pocket with the cash value. For most people I say scrutinize everything. The next thing I will look at is why am I sitting on $25000 in value on my vehicle that could be cash and I could lease or finance for as low as $250.00 per mo. I will not pay the guy to shovel snow in winter saving $100.00 per mo. and getting some exercise.
    Scrutinize Your Cell phone bill.Renegotiate your cable/internet. You don’t get anything if you don’t ask.
    On and on

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