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The Number One Secret to Improving Your Finances

I once read Think and Grow Rich by Napoleon Hill and throughout the book he mentioned that it contains a secret to success in life. I knew that he’d never actually reveal the “secret” and that I would need to infer its meaning, but that didn’t stop my intrigue from running rampant.

That got me thinking about secrets as they pertain to personal finance. Every news outlet likes to make it seem like nobody knows what they’re doing with their money and that personal finance is more difficult than performing surgery. 

We make personal finance out to be much harder than it actually is and act like one needs to know a special secret just to navigate yourself through your own finances. But what if there was a special secret?

The single most important thing I’ve ever done with my personal finances was beginning to track my expenses.

Hopefully you’ve read my post about the three building blocks of personal finance. If you haven’t, give it a read. Tracking expenses is a critical component of minimizing expenses, one of the three building blocks. If you don’t know what you spend and on what, then how will you ever know if you’re improving or keeping spending in check?

Simple, ugly, but very effective.

It’s very basic. Track everything that you spend on a spreadsheet. We use a Google Sheets spreadsheet that we keep in Google Drive so we can access it from anywhere. I’ve been doing this since 2013 and I cannot emphasize to you just how important it is.

It all started just as I was finishing up college. I had about $16k in student loans and I ran some numbers to get an idea of a post-college budget and made assumptions for what my salary would be right out of school. 

I had a mini meltdown (my sister can confirm!) when I saw the numbers and thought that I’d never be able to pay back my loans (even though it was a relatively low amount by today’s standards) and never be able to save any money. After finding Len Penzo’s blog at the time and reading some of his content about expense tracking, I figured I’d give it a go.

Me having a meltdown about my finances, thinking I’d never be able to pay off my student loans.

I’ve always been frugal and I certainly didn’t spend much during college, but I still didn’t really know how much I spent each month and how it was allocated. Once I began tracking expenses and income, I was able to see each expense item and expenses by category (using a simple SUMIFS formula) in addition to my income and savings for that month.

Doing this has allowed me to know exactly where every dollar has gone, which buckets I spend more or less on, and gives me ideas of where I can cut. The categories we track include Housing, Food, Gas, Utilities, Car Insurance, Student Loans, and several others. 

Ultimately, you can track whichever categories make the most sense based on your life. If you own a home, home maintenance is a good bucket to track as it can be quite substantial over time—believe me, I know. We used to own a home and now rent. More on that topic at a later date!

You may be thinking, “The Money Magellan, why don’t you just use one of those free, automated trackers, like Mint.com?” Well, I’ve never felt comfortable giving login information to a third party for all my most important financial accounts.

I’m sure it’s probably safe, but I’d rather not take that risk. There’s also something about having to manually enter an expense in a spreadsheet that makes you look at the purchase again and always keep that questioning eye.

Using a spreadsheet has worked best for me, but if using an aggregator like Mint.com works for you, then I say go for it! Any way that will allow you to track your expenses and see where your money goes will be a big win for you personally.

So I’ve tracked this over time, but what are the results? What has your overall spending looked like? My wife and I have tracked our combined finances since 2018 and below is what we’ve spent by year. Note that this excludes student loan payments since the amount we’ve paid over time has fluctuated considerably.

2018: $33.7k

2019: $35.4k

2020: $33.0k

2021: $40.4k

As you can see, we were in the low-to-mid $30k range from 2018-2020. For 2021, we’ll come in just above $40k. Much of this increase can be explained by about $4,500 that we spent to prepare our house for sale earlier this year—including staging, new carpet in the basement, tree trimming, window cleaning, a deep interior clean, and a few other small line items. Excluding that, we would have been very close to the prior three years.

I expect 2022 will be right in that mid-$30k range as well. We’ve done a great job avoiding lifestyle creep by keeping our housing costs low and driving old vehicles. Neither of us have expensive hobbies and are quite adept at entertaining ourselves for low or no cost.

As I’ve mentioned, food is the one area that we allow ourselves to spend as we please. We don’t go too crazy (we average in the mid-$500 range per month for total food spend), but we go out to eat whenever we want because it makes us happy.

Having the ability to keep spending in check over time is a financial superpower. After all, the lower your ongoing expenses, the less money you ultimately need to retire.

Do you currently track your expenses / have you ever tracked expenses in the past? What is your typically monthly or annual spend? 

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