One of the pillars at the core of personal finance is expenses.
We spend money every day.
Since spending money is a part of our daily lives, it’s easy to get carried away with it and not question what we’re spending money on or how much we’re spending.
It doesn’t help that you can probably make a purchase online in less time than it took for you to read this sentence.
While there are no problems with spending money in itself, there are repercussions for not knowing what you’re spending on and how much you’re spending.
In turn, while it may seem like a chore, there are many benefits to tracking your expenses.
1: Financial Awareness
It’s the start of a new month. You have some money in your bank account and you think to yourself: that’s quite a bit of money, it should be more than enough to last me the whole month.
You go about your life spending comfortably – not trying to save every last penny, but also not going over the top with your spending.
At the end of the month, you find out that you’d spent more than you expected, and wonder where all your money went.
Has this ever happened to you?
This happened to me many times in the past, especially during my time as a Year 1 student in university.
The fact of the matter is that if you don’t track your expenses, you will lack financial awareness.
You’re probably spending more than you think and on things that you don’t even remember spending money on.
This is because every expense adds up quickly – even the small ones.
Spending $2/day on a drink may seem like a small expense, but even that adds up to $60/month, which is a fairly large sum if your monthly expenses are a few hundred dollars.
Tracking your expenses will reveal the truth about how much you really spend every month and give you a better understanding of your spending habits.
You’ll be able to answer the question about where all your money goes instead of being left to wonder at the end of every month – but perhaps you’ll wish you never knew.
2: Align Priorities & Spending
If you’re reading this post, chances are that money is a very finite resource for you and you’re not some multi-millionaire who doesn’t have to think twice about paying for food delivery when there’s a price surge.
Given that, it makes sense that your money should be spent on the things you need and value.
But if you don’t track your expenses, this lack of financial awareness makes it easy for you to go overboard in your spending on things that may not be a priority to you.
This means that with your finite amount of money, you have less money available to spend on the things you need and value, which means you’re probably not as happy as you could be.
In I Will Teach You To Be Rich, New York Times best-selling author Ramit Sethi says “Show me a person’s spending, and I can show you what they love.”
I completely agree.
Whenever you pay for something, you are declaring that it brings you more value or is of higher priority to you than something else.
So if you claim that something is important to you, it should be reflected in your expenses as one of the highest spending categories.
Tracking your expenses allows you to evaluate whether your spending on various categories is in line with how much you value them.
For example, if you spend the most money on shopping, cabs, and food, do you consciously choose to spend on them because you value fashion, convenience, and good food?
Or do these expenses arise from impulse purchases, poor time management, and laziness?
If things that you value are not among your highest spending categories, then a disconnect exists.
It’s possible that you don’t actually value them as much as you think you do or would like to.
Or, you haven’t been able to spend your time/energy on them because you’ve been so caught up with life.
Either way, it’s an indication to you that you need to do something – reevaluate your priorities or actively pursue the things you value.
3: Fix The Leaks
Without tracking your expenses, you’ll definitely have money leaking out of your bank account in the form of expenses that you don’t particularly need or value.
But once you have clarity on the things that are truly important to you, you can put a stop to this.
Tracking your expenses allows you to review them and make decisions about what to do about them moving forward – decrease, increase, or remain the same.
And these decisions can be guided by the things you value.
Spend $20/month on Netflix watching shows you don’t really enjoy?
Cancel it and watch YouTube instead.
Spend $7/day on a latte when you really just need a simple coffee?
Go to the coffeeshop and buy a $1.50 kopi instead.
Making little tweaks like these to your life to cut down on things that aren’t important to you can do wonders for your financial situation in the long run.
4: More Money
By successfully fixing the leaks from your bank account, naturally, you’ll end up having more money than usual.
This means you’re free to do 2 things – set aside more money for savings/investments, or spend more money on the things that matter.
Whatever your decision is, it’s a win for you.
It may seem like an obvious decision to beef up your savings and investments, but you shouldn’t rule out increasing your spending on things you value.
While financial security and wealth accumulation is extremely important, we shouldn’t lose sight of the present.
If you think about it, this extra money you’re sitting on is money that you used to spend every month anyway.
As long as you already have a plan in place to reach your savings and investment goals, you shouldn’t need to feel bad about spending this extra money.
After all, this time, it’s not being spent blindly on things you didn’t enjoy – it’s going to bring you true value, whatever that may be, and that’s more than likely going to lead to a happier life.
My advice would be to allocate some of it to savings and investments and spend the rest of it – cut yourself some slack and live a little!
To summarise,
Tracking your expenses will help you to:
- Gain financial awareness about your spending
- Align your expenses to your priorities
- Fix money leaks
- Have more money
Even though it’s a bit of a hassle to get into the habit of tracking expenses, after you experience the benefits of it, it’s definitely a habit worth making.
I’ll be writing a post about tips for tracking expenses soon, so stay tuned for that.
It’s been 2 years since I started tracking my expenses and I’ve cut out hundreds of dollars of mindless spending since then.
If you haven’t already been doing the same, I challenge you to – I promise it’ll be worth it.
Leave a comment below if you accept this challenge – I’ll do you a favour and check in on you!
If you’ve been tracking your expenses, that’s great! Leave a comment as well sharing how much you’ve cut down on the things that don’t matter – I’d love to hear it!