One of the key habits of financial success is living within your means and knowing how much you spend every paycheque, every month, or every year. In one of my most popular articles on RetireHappy, Different ways to track your spending, I talk about how important it is to know how much you spend and offer some different ways to track your spending:
- Write down everything you spend
- Use software
- Online tools
- Use a spreadsheet (Download Budgeting and Cashflow spreadsheets (3307))
While this may all seem so simple, why is it that so many people I meet do not know how much they spend with much accuracy. Why aren't people utilizing these simple strategies? I think the biggest challenge people face isn't desire but rather lack of time, passion, commitment and/or a catalyst to action. If you think about it, implementation is always the toughest part. What's most interesting to me, is after re-reading that article, I realize that I personally don't use any of those strategies myself anymore. So what do I do to track spending?
Simplfy, simplify, simplify
You've probably heard that the key to buying real estate, is location, location, location. In investing, may people will say the secret is diversification, diversification, diversification. For me, my life mantra is simplify, simplify, simply. I try to apply this mantra to all facets of my life and it's no different when it comes to managing money.
So, when it comes to spending, I no longer have time to enter everything into a spreadsheet on a consistent basis (I used to). I can't be bothered to write down everything I spend. And I have never found a software program that works for me but I know people who like to use phone apps or programs like Mint or Quicken. My real problem these days is my priorities have shifted because I have 4 active boys and being a dad takes up a lot of my time. Between my boys and my business finding extra time is not easy to do. I'm sure many of you can also relate to being too busy.
Spend everything on one credit card
When it comes to spending, my wife and I, spend everything on one single credit card (and we have been doing this for about 10 years). This is a great way to track our spending because the monthly credit card statement is our tool to know how much money we spend in any given month. Simplifying our spending has helped us in many ways.
For many people, spending happens in many different forms. Sometimes people pay with cash, sometimes with debit and other times with various credit cards. If you think about it, the more forms of spending anyone uses, the harder it is to track spending. The only way to track spending is to aggregate spending data through a spreadsheet or software program. Unfortunately, that requires precious time and energy which may be the reason so many people don't do it.
Not only does spending on one credit card help us to track our spending, we also benefit in a couple of other ways:
- Obviously spending everything on one credit card also allows us to collect Air Miles and gets us a bunch of travel and merchandise rewards.
- The other benefit of using one credit card is that our credit card has an online system (Money Logics) that breaks our spending down into different categories. (Just for interest, we use a BMO Air miles Mastercard. I don't claim it as the best card as I have not done much analysis on which credit card or rewards system is the the best.)
It's not for everyone.
Using a credit card for spending works really well for us but it's not for everyone. It's important to disclose that we pay off our credit cards every month. If you don't pay off your credit cards every month, please do not use our system. It can be very dangerous if you don't have discipline or risk overspending.
Use what works best for you
My wife and I love our system to track spending because it's simple, easy and works well for us. The key in my mind is it's simple and there are other ways to achieve that like simplifying your banking and just using one bank account. Alternatively you could use a pure cash system to track spending.
As you can see, there are many different ways and approaches to track your spending. It matters less which approach you use because they all work. The key is to find the system that works best for you and stick with it. Do you have a system that you use?