Keep track of your spending – it’s one of the cardinal rules of good personal finance and advice you’ve probably heard before. After all, how else are you going to stick to a budget and save for the future when you don’t know how much (and on what) you’re spending in the first place?
The only problem: it’s one of the hardest habits to live by. Especially nowadays.
Debit and credit have their obvious benefits, but they’ve also made spending less tangible and as simple as tapping a card. And while the growing number of digital subscriptions are convenient, it can be easy to set it and forget it, only to end up losing track of everything you’ve signed up for.
The good news is there are some simple steps you can follow to stay on top of your spending and build up your savings.
Monitor your daily expenses
While we’re all aware of our major fixed costs, like rent, smaller recurring expenses can seem insignificant and fly under the radar only to add up to a serious chunk of change over time. Buying a latte each morning might not seem like a big deal, for instance, until you realize it can add up to well over $1,500 at the end of the year.
Tracking your daily expenses can shed light on it all, keeping you informed on how much you’re spending relative to your income and what small yet impactful changes you can make to improve your bottom line. Make sure to split your spending by category, so you know exactly where most of your money is going.
Before you draw out an elaborate budget and set ambitious goals of cutting your spending in half, start by actually tracking what you do spend.
Use financial apps
Yes, you can stay on top of your spending by reviewing online bank statements and receipts, but there are also plenty of money-saving apps out there that can automate and simplify your expense tracking.
Butter Rewards, for instance, will help you aggregate all your monthly subscriptions and keep you in the loop of upcoming bills and price changes. Meanwhile, Mint and You Need a Budget can help by categorizing your daily expenses so you can see spending patterns and identify what types of purchases you’re making the most often.
Set realistic spending limits
Once you have an idea of how much you’re spending every day, you can better predict your future expenses and start setting a budget.
Allocate spending limits to ensure you can cover for your fixed costs and “needs”, like rent and groceries, and avoid overspending on your “wants”.
As a general rule of thumb, many financial experts advocate the 60/20/20 rule. 60% of after-tax income should go to fixed costs and “needs”, 20% to “wants”, and 20% to savings and debt reduction. But these are just general guidelines. If you can’t hit those benchmarks, don’t make that a reason to abandon a budget altogether.
Remember to be realistic. Sticking to a budget often takes some trial and error, so start gradually by cutting out purchases that you’ll miss the least and steadily dial back everything else.
Do you pay for both Apple Music and Spotify? Consider cancelling one of these subscriptions and stick to a single music app. Are you a coffee lover? Don’t try to cut out lattes altogether, but instead, limit the number of pricey caffeinated drinks you purchase every week. Are you a foodie and love eating out with friends on weekends? Make it a habit to not eat out during the workweek, and when you do dine with friends, avoid also ordering appetizers or drinks that can cause your bill to balloon.
Setting a budget and sticking to it is a lot easier when you have specific financial goals in mind. Remember, it’s not all about just “saving for retirement”; you should set shorter-term goals too.
Do you owe an outstanding balance on your credit card? Make it a goal to pay it off faster by setting aside extra money every month to chip away at your balance and consider scoping out a low interest credit card or balance transfer credit card to tackle your debts once and for all.
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Consistency is key to achieving your financial goals. That’s where automating your savings comes into play.
By having it so a percentage of your income is automatically set aside each payday, you’ll make sure that you always put money away each month to either invest or pay off your existing debts. Plus, by automating withdrawals on the day you’re paid, you’ll prioritize saving first and ensure your money is put to good use before you have a chance to spend it (as opposed to spending first and trying to save whatever you happen to have leftover).
Just to put things into perspective: automatically setting aside $250 per month (which works out to just under $9 a day) can make you several hundred thousand dollars richer by retirement.
Wait at least 24 hours before making a big purchase
Shopping is emotional, hence the phrase “retail therapy.” According to a Stanford University study, even just seeing pictures of products you want to buy can be enough to trigger the brain’s pleasure centres and a dopamine rush.
While there’s nothing inherently wrong with buying nice things for yourself, it’s a problem if emotional shopping derails your budget and causes you to overspend on what you don’t need (or don’t really even want).
One way to combat this is to use delayed gratification. Before pulling the trigger on a major purchase (like say, anything over $300), force yourself to wait at least one day. Not only does this curb impulse buying, but by sleeping on the decision, it can also help ensure you’re making a cognizant purchase and spending money in a more meaningful way.
Value purchases in terms of hours worked
A great way to encourage yourself to spend less and save more is to shift your perspective about the cost of a purchase. Rather than just looking at a product’s sticker price, take a step back and calculate how many hours you’d need to work to afford it.
Confused? Let’s run through an example.
Let’s say you want to buy a new smartwatch that costs $500. If you earn an annual salary of $45,000 at a typical 9-to-5 job, your hourly take-home pay would be around $18.5. After running the numbers, the smartwatch would cost you the equivalent of 27 hours of work or almost four full workdays. With this knowledge in hand, you’ll have a more holistic view of what the purchase really costs you and whether buying it is worth your time.
Obviously, you don’t need to bust out this calculation for every mundane expense, but it’s a handy decision-making tool for those major nice-to-have purchases. It can also help you avoid being swayed into making an impulse purchase because of a limited-time promotion that’s seemingly too good to pass up at the moment.
Be prepared with lists and meal plans
Whether you’re shopping to restock the fridge or update your closet, don’t go in blind. Be prepared and create a shopping list in advance of exactly what you need to buy and the maximum amount you’re willing to spend.
With a list in hand, you can avoid impulse purchases, being swayed by in-store promotions pushing items you don’t really need, or falling for the sneaky psychological tricks stores use to get you to spend more money (like putting essentials at the back of the grocery store or strategically stocking the shelves to only display the priciest items at eye-level).
Being prepared also means meal prepping. Dedicate a day of the week to cooking meals with groceries at home for the entire week (or at least for two or three days). Meal prepping in advance means you can avoid shelling out extra on pricey food deliveries if you’re hungry and don’t have a meal ready for lunch or dinner.
Maximize your saving opportunities
Building up your savings isn’t all about cutting back your spending but also stretching the value of every dollar you do spend. After all, buying things is inevitable.
Small acts like paying with a travel credit card can, over time, earn you enough points to book free flights and save you hundreds of dollars on your travel costs – provided you use the card responsibly and pay off your statement in full each month of course. Accessing shopping coupons online can help you save a dollar here and there on your grocery runs. Using investment tools, like Wealthsimple‘s Roundup feature that takes the spare change of every dollar you spend and invests it, will help to increase your net worth with little effort. Remember, when it comes to being smart with money, every dollar counts!
Track, monitor, automate, and save. By making it a routine, sticking to a budget can become a habit. If you veer off course after a particularly expensive week, don’t abandon your budget altogether. Treat each day and week as its own; it’ll make it easier to get back on course.