After struggling to track our spending for a long time, we came up with a simple method. This helped us gain many insights into our spending and eventually helped us get to Financial Independence (FI) a lot sooner.
Background: Tracking Our Spend
Just like everyone else, we were skeptical about tracking our spending. It is time-consuming. Also, to be honest, it is boring. I am sure some people enjoy it. But we, at the Finer household, do not. Lastly, we were unsure what we would learn from tracking our spending.
It was challenging to keep a note of all the times we spent our money. We tried noting down the amount when we spent money on something, but sometimes we would forget to note it down. We tried keeping receipts – but sometimes you don’t get a receipt. Also, it is easy to misplace receipts.
We also looked at apps to track spending. But even there, you had to enter things manually. Some apps did automate things, but you have to provide them with your bank / credit card credentials, which we did not want to.
You cannot improve what you don’t measure.
How We Track Our Spending Now
Finally, we figured out a simpler way. We decided to use just one credit card for all our expenses. We got an ‘add-on card’ for that card (which enables two people to use the same card). This allowed me and MrsFiner to use the same card for all our expenses.
We also switched all of our scheduled payments (utilities, cell phone, etc.) from other credit cards or bank accounts to this one single card.
Although this took some time, these were all one-time changes. What it did for us was it gave us all of our spending in one place. At the end of the month, we could see a consolidated view of all our spending by just opening the credit card statement.
Now, this approach was not without its downside. Some credit cards offer additional discounts for specific areas. For example, it is better to use an Amazon Prime credit card for purchases on Amazon. Or a Costco Anywhere credit card for shopping at Costco. Using just one credit card for everything means you lose out on specific discounts.
How Tracking Our Spending Helped Us
The biggest benefit of tracking our spending was that we could see exactly where our money was going for the first time. Having never done this before, it was an eye-opener!
For example, we did not realize that 20% of our monthly budget was going towards our health insurance. After realizing that we spend a fifth of our budget on this area, I did a lot of research into it. I discovered HSA accounts and high-deductible insurance plans, and we were able to reduce this spending substantially.
Another thing that surprised us was that we spent more than 10% on groceries. We ended up focusing on this area and reducing our spending by 30%.
The more we looked at the numbers, the more insights we got. One of the insights was that we bought a lot of small-ticket items. Although each of these items cost very little money, when we added them all up, it was more than 7% of our spending! We clearly did not need so many items. In fact, we could not even remember why we bought some of them!
In addition to the above insights, we saw many other benefits from tracking our spending. The four key ones were:
- Stay on track: Tracking our spending helped us stay on track during our Financial Independence (FI) / Early Retirement journey. We knew how much we were spending and saving every month to reach our FI goal.
- Ready for emergencies: When we started, we did not have enough savings. Tracking our spending helped us save money and build an emergency fund. This helped eliminate stress about money and made us feel better about meeting any emergency.
- Insights on spending habits: Tracking our spending helped us understand where our money was going. Before that, we used to earn money every month and then at the end of the month wonder where the money went?
- Ensure money is being spent wisely: After finding out where our money was being spent (the point above), we were able to make the right changes. This helped us make sure our money was spent on items we valued, and we were able to reduce / eliminate spend on items that we did not value.
In Conclusion
Our initial attempts at tracking our spending did not work, so we used a simpler approach. It gave us a lot of insights into our spending.
As a result, we were able to increase our savings, which helped us get to FI a lot sooner!
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