Knowing the Answer to this Question Will Change your Financial Life

How much did you spend last year?

I don’t mean just taking a guess or a rough estimate. Exactly what was your personal spending last year?

It seems like an easy enough question, however I think most people don’t want to know the answer to that question.

Why?

Because it scares them and they don’t want to face up to the fact they may be spending too much.

Think back to when you were a student or had your first job. I used to eat 2 Minute Noodles and watch every last dollar in those last few days till I got paid again. I’m glad those days are long gone!

Over the years as our income goes up, our lifestyle tends to improve at the same pace. Better car, second car, more expensive wine, bigger house, better holidays, more holidays… But unless you have good savings habits or plans, it is not hard to spend all that extra income.

At the start of each year I look at the personal spending of my family for the previous 12 months. It is not always a pretty picture – it is amazing to see how some of the small things add up (or you’ve wasted money on something you thought you needed). This helps change some bad spending behaviour and make sure we are focussed on the bigger goals that are important to us like being debt free, an overseas snow trip….

8 comments

  1. As we committed to FebFast this year (well… until we cracked whilst out for dinner last night) can I substitute February 2013 with February 2014 or is that cheating?

    1. As well as doing a full 12 months I’ll sometimes just check the last 3 months and average it. Sounds like that could work for you.

      I’m always on the lookout for good tools to measure this.

      Have you used any that work well for you?

      1. David,
        I road tested a product that I’m sure your very familiar with – that little ‘voyage’ resulted in some very defensive responses from my wife when asked to detail what certain transactions were for. As Liam suggests, sometimes we don’t want to know the results!

        What it did highlight however was how much of our spending wasn’t tied to a budget. Something that we will look at again after our credit card spending can be automatically classified and analysed (in the near future).

      2. It is often easier to ignore than get into the results!
        Fantastic that you will soon be able to automatically classify it. I think the key to this is it needs to be easy.
        Also looking at it again at regular intervals will make it easier to form new habits.

  2. Good article Dave. TIP: For the 3 months pay for everything by Debit Card or Credit Card. No cash as that is how money disappears. If for any reason you can’t use the card then take a photo of all invoices or receipts and store in a Dropbox folder.
    After 3 months you can use the MoneySmart.gov.au Budget Planner to put it in categories and work out your total spend v income. Beware it will scare you as with most people spending/lifestyle rises to eat up income no matter how high.

    1. Good idea Liam. I agree the result is scary, which is why many people don’t do it.
      It is easier to think you can make money with a hot investment tip than the hard work and sacrifice of smarter spending/saving.

  3. I track almost all of my expenses and revenue in Quicken. (I say “almost all” because I put ATM withdrawals in a “Cash” account, and then put the larger cash expenses in that account; whatever cash is left over I classify as “miscellaneous.”) I download the transactions from my main credit card, which saves me a lot of time and ensures accuracy. At any time, I can quickly see what my spending and income have been for any period. And, yes, it’s often sobering. Like getting on the scale helps me keep my weight in line without having a strict or formal diet, reviewing expenses tends to moderate my spending, even without a budget. Keeping track takes some time and some discipline, so it isn’t for everyone. But for me it’s more than worth it. And as a financial advisor, I’d be remiss if I didn’t do what I recommend my clients do.

    1. Thanks for the comment Neal. You make a great point about a budget. I don’t like the idea of a budget for my personal spending. Like you, knowing what I spend causes me to modify my behaviour (where necessary). I can’t stress enough the importance of having the discipline of coming back and reviewing it on regular intervals, be it 3 monthly or 6 monthly.

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