Recently, an old friend emailed me for help with his family's financial woes. The confession that followed wasn't pretty, and included tales of student loans, car loans, unrestrained spending, and empty bank accounts. It was all bad news, which I found rather surprising considering their relatively high income. So, of course, I asked about their fixed expenses. What were they?
We emailed back and forth for quite a while, and he gave a few more details of their situation. For example, their house payment was only around $900. Affordable. Car payments and student loans consumed around $450 each month. Not shocking. Then there were the expenses that everyone must contend with — things like groceries, gas, school supplies, and insurance. It was all rather boring.
Follow the money trail
So, what was the problem? This is a couple who easily pulls in six figures and lives in an incredibly affordable part of the country. Their fixed expenses were relatively low, but they were constantly coming up short on funds. Why? Obviously, something was going on, but they couldn't put their finger on it. And neither could I.
“You guys should track your spending,” I suggested. “That's the only way to see what you're spending your extra money on.”
He agreed, and I said that I would check back with them in 30 days. So I waited, and waited, and waited. A month later, I emailed to see what they had discovered.
“We gave up,” he said. “It was too depressing.”
“Depressing?” I asked. “More depressing than being broke?”
“The kids are always needing something,” he said. “And we hate staying home on the weekends. We want to go out and have fun.”
“But you'll never know where your money is really going unless you track it,” I said. “Maybe you can just start over at the beginning of the month.”
“I guess we don't really want to know,” he said.
It's hard to argue with that.
Sometimes the truth can hurt
Although he didn't give any more details, I think it's pretty clear what happened. They started tracking their spending and were totally appalled at what they found. I've been there. When my husband and I started tracking our spending years ago, we discovered that we were spending over $1,000 on food each month … for two adults and a baby! And that was on top of the other ridiculous ways we were wasting our money. My friend was right; it was depressing.
But, unlike my friend and his family, the severity of our situation actually forced us to change. Tracking our spending made us take a hard look at ourselves and what we really wanted out of life. And we didn't see our failure as a prison sentence; we saw it as a call to action. We used the information we gleaned from tracking our expenses to transform our lives, pay off debt, and completely redesign our future.
But my friend and his family just can't do that right now, and that's okay. The truth is, they're not ready yet. It seems like most people need to hit rock bottom before they feel compelled to take drastic action. And, one thing I've learned over the years is that you can't make people change. They have to want it. They have to take it for themselves. And until that moment comes, you just have to watch helplessly from the sidelines.
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How to track your spending (and why you should)
My friend's situation is tragic, but it doesn't have to be forever. I'm sure that he and his family will eventually tire of their situation again at some point and hopefully try again.
But what about you? If you want to get in touch with the reality of your own situation, tracking your real spending is an excellent way to do just that. Sure, you may think you're only spending X number of dollars on your hobbies, groceries, and transportation costs, but are you? Track your spending and you'll know for sure. Here's how:
- Commit to the cause — Before you get started, you need to commit to your own cause. Because if you don't, no one is going to do it for you. Tracking your spending can be an eye-opening experience, but it's one that won't work without the full cooperation of your family members. In other words, don't do it halfheartedly. Remember, you have to want it.
- Keep receipts — You're probably going to hate what I'm saying, but you really need to keep receipts for all of your purchases for an entire 30-day period. This can be quite a hassle, especially if you're not used to doing it. However, it's an essential part of the process. Embrace it.
- Track your spending online — In addition to keeping track of all those receipts, you'll also need to keep track of your online spending. This can include bills that are paid online, online shopping, and even credit- and debit-card transactions. The goal is to get a clear picture of all of your spending, so it's important to include every single transaction you make during the entire 30 days.
- Tally everything up — Once you've gathered your receipts and online transactions in one place, it's time to tally them up. Start by lumping similar purchases into categories that make sense. Your categories will vary depending on your specific situation; but they'll probably include things like groceries, restaurants, gas, clothes, medical bills, hobbies, and home maintenance.
- Be honest with yourself — If you track your spending for the full 30 days and are shocked by the results, try not to make excuses for your behavior. Remember why you started tracking your expenses in the first place and try to learn something from the experience. If you don't, you're just resigning yourself to the life you've been living up to now. Remember where that road leads. Nowhere.
The truth is, tracking your spending is the easy part. Learning that you've been completely reckless? Now, that's hard.
On the other hand, you can't change what you refuse to recognize. You can't tackle a problem that you don't even understand. Tracking your spending will probably be the most painful part of your journey. Likewise, it's the most important. Because when you see your own spending on paper — in black and white — you can no longer blame the kids or your busy schedule. You can't complain that you “just need a raise,” or point to high taxes, the government, or anything else as the source of your woes.
We often create our own prison cells, either out of habit or laziness or because we fail to plan. And when we do, it's easy to blame everyone else and think that escape is impossible. And that's why tracking your spending is a crucial piece of the puzzle: It forces you to come face to face with the biggest threat to your financial future.
Have you ever tracked your spending? Did it change your life?
Author: Holly Johnson
Holly Johnson is a credit card expert, award-winning writer, and mother of two who is obsessed with frugality, budgeting, and travel. In addition to serving as contributing editor for The Simple Dollar and writing for publications such as Bankrate, U.S. News and World Report Travel, and Travel Pulse, Johnson owns Club Thrifty and is the co-author of Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love.