Instead Of Hoping Lets Start Doing!
Around New Year’s time, there is much ado about resolutions and goals. After all, it is a new beginning, and we humans are always hopeful about new beginnings and second chances. We hope to lose weight. We hope to improve relationships. We hope to get better careers. We hope to get better grades or to get into a good college. We hope, we hope, we hope…
Unfortunately, hope is too often cheaply used every January 1. We talk about hope openly, post about it on our social media pages, but we rarely spend anything of value (particularly time and effort) to make these hopes come true.
When it comes to finances in the new year, you likely hope to better manage your money. But what are you actually DOING about it? Creating a budget (aka a spending plan) is a great start. But budgets are statements of hope. They indicate our best intentions for spending money in the upcoming month. What else can you do?
Writing down your hopes to turn them from wishes to goals – thereby greatly increasing the likelihood of achieving them – is another great activity that will be critical to your financial success in this new year.
Probably the best and most practical action you can take to improve your financial situation is a simple one:
Track Your Daily Spending
This simple habit is often the most powerful tool for individuals and households to make the major changes in their lives that will lead to the financial outcomes they hope for. Back in the mid-2000s, when I first started to facilitate personal finance classes in the community, I was invited to a transitional home for women exiting prison and re-entering society. During my first weekly class, I shared a form for the residents to track their daily expenses. At the next week’s class, one lady shared the insight she had gained from the daily exercise. It was not until she tracked her spending that she had any idea as to how much she was spending on soft drinks. Once she realized that she was spending more than three hours’ worth of her 40-hour a week income on soft drinks, it became very easy to re-prioritize soft drinks in her spending plan. She changed her behavior.
The same result can happen for all who decide they want to know where their hard-earned money goes day after day, week after week. Common discoveries include realizing that you spend far more than expected on drinks (e.g. soft drinks, coffee, energy drinks, alcohol, etc.), dining out, vending machines, video games, and other forms of entertainment. For others, it might involve gift giving, movie downloads, or home décor. Everyone has their own financial temptations.
Once you have an idea of your own spending behaviors, you can adjust them to fit your established priorities. But how involved is this exercise? For many people, this sounds like a lot of work. The good news is that it does not require much effort. You can use a form like the one available here. You can also simply ask for a receipt everywhere you make a purchase, place it in your wallet, and each night, remove the receipt and add it to a sheet that tracks your expenses. Your expenses should be broken into relevant categories, such as housing, transportation, dining out, groceries, entertainment, etc.
Understanding how much you spend on unexpected or unplanned for expenses each month can be a powerful motivator to reprioritize your expenses. However, once you are confronted with how much your unplanned expenses work out to be over a year’s time, reality can be jaw-dropping. For example, stopping at your favorite gourmet coffee shop each weekday morning for a $6 latte or espresso may not seem like that big of a deal. Over a month’s time, that works out to $132. While not insignificant, that amount still does not seem like enough to break the bank. However, project that out over a year’s time, and you are likely spending over $1,500 on your cup of joe. If a weekday coffee run is your top priority for that $1,500, then there is no problem or reason for concern. However, if you are frustrated that you are not achieving other financial goals, you will reconsider your weekday behavior to redirect that $1,500 to a more important purpose.
At the end of the month, add up your spending in each category. Ask yourself if the totals in the various categories correlate to your financial goals and vision. If not, be prepared to adjust your spending plans and behaviors for the following month. Continue to track your expenses each month until you are certain you know how much you are spending in the various categories. I would also recommend that you repeat this tracking exercise at least each January to keep your spending within your planned budget.
We have simplified this activity for you by creating this spreadsheet. Download it to your desktop. Better yet, add it to your cloud storage so you can access it from your smartphone. Then, at the end of each day, enter your daily spending in the cell that corresponds to the category on that day’s line. The spreadsheet will total your expenses for the month and project your spending for the year under each category.
At that point, the only thing left for you to do is decide how to adjust your spending to fit your priorities. Good luck, and happy New Year!