Creating a habit: Tracking Expenses

What this blog is about?

In this blog, we will talk about how can we simply track our expenses without too much of a hassle and control our spending habits by analyzing the expenses based on their types on monthly basis.

I am not a Financial Expert, so this blog is not about how and where to invest or create financial strategies. It simply focuses on the analysis of your spending.

You can use the same tracking system for income as well. But to me, it makes more sense when you have multiple sources of income or you’re tracking expenses for all of your family members.

From personal experience, I would suggest starting small by tracking your spending first and expand it as you go.

So without further a do. Let’s get started.

Why should we track our expenses?

Following are my reasons why we should track expenses.

1. Control Spending.

When I was in college where I was learning and not earning, I get a fix amount of money to be spent in a month (However this does not apply to all the students).

In this digital world, It’s hard to avoid the temptation of buying stuff, so we buy uncontrollably and before the end of the month, we always wonder, where all my money went?

It happened to me for the first few months and also with most of my friends. We all party hard for the 1st week of the month and the rest of the month goes like this.๐Ÿ‘‡

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I started tracking my expense to control my spending habits by figuring it out where I am spending unnecessarily. Initially, it was hard but after some time, I started to see the benefits of it. Becauseโ€ฆ.

What gets measured gets managed

Peter Drucker

2. Opportunities for savings.

Life is unpredictable and uncertain. Saving money gives you a way out from the uncertainties of life and provides you with an opportunity to enjoy a quality life.

For saving, we need to understand spending first. Tracking expenses will help you to understand and control your spending which is an opportunity for savings.

3. Validating Assumptions.

Tracking helps you to validate or break your assumptions.

For Example, before tracking my expenses I used you think that the reason for not having any savings was because I spend a lot on dining out. However, when I started tracking I found that I spend most on Traveling.

The dining out amount was 5-10% compare to Traveling. So now it makes sense to control spending on traveling rather than on dining out.

For some people, this seems obvious. But for me, it made sense when I start tracking. Data shows the reality.

My Money My Choice.

You might be wondering why I am talking so much about spending habits. Someone might argue it’s my hard earn money I can spend whenever and whatever I want.

I am not saying don’t spend money at all. Instead, my point is to resist the urge to buy things which we don’t need.

Sometimes buying unnecessary stuff can have a mental burden on us. I highly recommend this Netflix documentary.

โ€œThe best way to give yourself a raise is to spend less money

Everything that remains.

Next time you buy something, a good litmus test is to ask yourself these questions.

  1. If don’t have that much money right now, Would I still be buying this stuff?
  2. Is this an expense or investment?

For 2nd question, we often get confused on what is an expense vs investment. I will share my understanding of what it is from a business perspective.

Expenses vs Investment.

  • Expense is nothing but the money you spend does not return anything in the future. Once it is spent, it’s gone. For example, buying clothes or dining out with friends.
  • Investment is the money spend today that will return something in the future. For example, if you are a developer who purchased Mouse, Keyboard, Monitor or Books then those are the investment for upscaling your skill and save time to do more stuff effectively which gives something you got it in return.
  • Sometimes it is an expense or an investment is dependent on what and why you are spending. Earlier Dining out was mentioned as an expense in the above example but it becomes an investment when you’re dining out with a potential client.

How do I track expenses?

I am not a fan of “Do exactly this and it will change your life” kind of stuff. What I will do is, I will share my experience on how I did it and you can learn and tweak it as per your need. So here I am sharing how I track expenses.

There are many ways to track expenses. From physical notebooks to digital apps like Excel, Sheets, Notion, etc. Use whatever works for you.

I use notion for its simplicity of creating tables. (More in next section)

Before I start, I set a goal against which I am tracking.

Most people think

income – expenses = savings

But that’s not how it works.

I learned this from the book called “The Richest Man in Babylon”

If you are in debt, live on 70% of what you make. Save 10% for yourself (Savings). Use the remaining 20% to repay your debts.

So we need to think of debt and saving first. Remove that from the income first and the remaining 90-70% is what we are left to spend. To me, that is a good starting goal to track my expenses against.

Using Notion for expense tracking

I started tracking expenses using notion in 2019. Since I was new I spend a lot of time experimenting with notion tables. I was looking for a way to automate most of the calculations in the notion itself.

So I created a simple expense tracker template that helps me to track and manage my personal finances.

So here is a basic overview of how it works. The expense tracker is divided into two parts.

1. Tracker Table

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Tracker table has 4 major columns. Date, Name, Amount, and Expense Type with filter for each month. We create an entry by selecting a date. Based on date selection it will automatically move the entry into that month’s filter.

Let say if you select 1st March then it will move that entry to March Filter.๐Ÿ‘‡

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I’ve also added a few additional columns like a “Paid” checkbox and “Paid by” to keep additional information about the expenses. You can customize those. I used paid checkbox to track the credit expenses.

2. Summary Table

This table summarises the expenses based on the expense type for each month. This is populated automatically. You don’t need to do anything here in the template.

The summary will be generated based on the expense linked to the respective month’s Expense Type.

For example, if you selected 2nd Feb as the date then add the expense type to “February Type” in the Tracker table

Or If you selected 28th March as the date then add expense type to “March Type” in the Tracker table.

If you want to get specific details of a month in the summary table. You can filter that month. Same as we did in the Tracker table.

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I’ve created this template on Gumroad where I’ve provided more details, guidelines, tips, and tricks on how this template works and how we should use it. You can purchase the template for $5 and save yourself a ton of work.

Conclusion

Most people struggle with managing personal finance or their spending habits.

Tracking expenses help me resolve those issues by understanding where I spend my money and how can I control it. I started tracking from paper to notes, from notes to app, and from app to notion.

But understand this, we need to be patient to see the result of tracking. We won’t see the result in a day or 1-2 months. It will take time.

Nothing can be perfect. Even after tracking for all these years I sometimes still do mistakes and buy things that I don’t need. But the major difference is that earlier it was happing very frequently but now it happens less and that’s really good progress for me.

Photo by Visual Stories || Micheile on Unsplash

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