For so long, I’ve avoided learning about my spending (I knew it wasn’t good), and it was the dumbest thing I could have done. Now that I’m serious about turning my financial life around, I am manually tracking every drop of gas I use and every bean of coffee (from Costco) I buy.
Manual tracking all the way
I don’t automate. Yes, I could link my accounting software to my bank so I wouldn’t have to input every little purchase. Recording all of those transactions has forced me to get to know my money in the most intimate way.
Manual tracking forces me to feel every purchase.
Part of how I ended up in such a bad place, was that I was ignorant of my spending. I just tapped my credit card to the terminal, waiting for ‘Approved’ to display, and I was out of there, never to think of it again.
If I slip up and buy a $3.26 coffee in a moment of weakness, I have to manually type in $3.26 and watch that $0 balance in my coffee category go to -$3.26. Then I have to steal $3.26 from another category like groceries or savings to cover it and watch THAT category drop. Going manual helps me feel ripple effect purchase.
Financial ignorance has been the root of my problems. So no more assumptions, guesses or, close enoughs. Yes it’s work…but it’s also working.
One is one thousand
Tracking every dollar has taught me to respect every dollar. I no longer justify small purchases simply because they’re small.
Things like leaving a light on in an empty room, buying a $0.99 drink in the checkout line, or grabbing a $15 bottle of wine never gave me pause because I thought they were absorbable costs.
I used to have no idea where each dollar went, so my mind created an arbitrary line for what I was willing to tolerate and what I wasn’t. This line was a product of my ignorance. I had no data-backed, rational priority system for spending decisions.
Once my full financial situation was laid out on paper, I saw how damaging those little purchases were. And the truth is, because I’m in debt, every purchase makes it harder to get out.
But there’s a brighter side to seeing those dumb little purchases…it means there’s hope. Here are some of the wasted dollars I was able to salvage in my monthly budget:
|$450||Groceries||Cut down on snacks|
Stuck to a grocery list
|$200||Alcohol||Cut consumption down to 1-2 drinks per week|
|$78||Eating out||Brought lunch to work every day or didn’t eat at all|
|$51||Mortgage Insurance||Cancelled it. We were suckers.|
|$28||Movies||Stopped digital rentals. Free / Netflix movies only.|
|$25||Coffee||Home-brewed only, no more Starbucks|
|$11||Amazon Prime||My wife and I both had our own (So stupid)|
|$3||Home insurance||Notified company of a new roof installation|
Monthly savings total: $846…and we didn’t have to sacrifice our lifestyle or happiness too much to realize these savings. Sure there were a few less movie dates and bottles of wine, but our day-to-day life stayed 99% the same as it did before.
The true cost of a dollar lost
$846 is no chump change. But when I started to realize the long-term impact of this wasted money, that’s when the consequence of a dollar lost really hit home.
For the sake of demonstration, let’s say we have an extra $1.00 a month to work with. Over the course of a year, this is about the cost of a burrito (with guac). Instead of spending that money on a burrito, let’s save and invest it in a typical index fund that earns 7% annually.
In 5 years…I’d have $72.60.
In 10 years…it would grow to 173.02.
In 25 years…$788.47.
In 40 years…$2,486.52!
What’s crazy is that 81% of that $2500 would come from earned interest.
$2500 could either get us a nice little vacation, or, assuming the cost of a burrito will be $32 by then (2.5% inflation for the next 40 years), that’s 78 burritos!
So essentially, by saving one burrito a year (at 2020 burrito cost), I’ll be able to eat 1.5 burritos a week when I’m 75. Sweet.
So going back to my example. Let’s say that instead of $1, I took that $846 a month and put it in the same investment vehicle.
After 40 years…I’d have $2,103,592.93.
Or 65,737 burritos.
I don’t want my wants as much
We were living in a negative balance. Each month, we fell a little bit deeper in the hole. But to climb out, we would not only have to find a way to stop the downward trend, but to find enough money to start moving up. In essence, we would have to fund two lives: The one we lived, and the one we were living.
To do so will take real sacrifice. But I was surprised to learn that the sacrifice wasn’t as painful as I feared.
I don’t miss my Starbucks, random Sunday afternoon beers, or going out to lunch. Sure, maybe there is a small part of me that wants them. But I could never feel good about indulging having learned what I now know about our finances.
When I look at the balance sheet and see only a couple bucks to spare, how could I possibly skip over to the mall for a gray sweater?
But you don’t have gray! You have navy and green, what are you supposed to wear with your black pants??
Until I’m out of this hole. No purchase will ever feel as good as being debt free. And that’s what I really want.
No more guessing
Budgeting and tracking first gave me awareness, then forced me to prioritize. Now with a system, it makes decisions simple. I’m no longer hoping I have enough to cover a certain bill, or wondering if I can afford to buy a new widget.
The picture below, which I stole from this post over at You Need A Budget, sums up this point perfectly.
The smile on his face isn’t from the pizza, but rather the peace of mind he has knowing he can truly afford his purchase. For me, lacking financial awareness created a very sneaky kind of stress that crept its way into all aspects of life. While I was unaware of where my money was going, I was also very aware that I had a giant problem I wasn’t dealing with.
I could never feel truly good spending my money on anything. Every trip to the movies was tainted with a little bit of guilt because deep down, I knew I was being irresponsible.
Tracking my money hasn’t been easy. Not only is it labor-intensive, but it’s pretty disheartening to see how much things really cost. Not to mention, there was plenty of shame when I was forced to confront how reckless I was with my spending.
Finally gaining financial awareness is a double-edged sword. While it can be painful, it is also freeing. Yes the problem sucks. But at least I now I understand it. Instead of feeling around in the dark, hoping to get where I want, the lights are now on and I can finally see the way out.