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.
1. 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.
2. 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. 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.
3. 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 work week, and when you do dine with friends, avoid also ordering appetizers or drinks that can cause your bill to balloon.
4. Set goals
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.
Want to build up some cash savings in case of a financial emergency or to fund your next vacation? Gradually set aside a percent of your income each month into a savings account.
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 every payday, you’ll make sure that you’ll always put money away each month to either invest or pay off your old debts. Plus, by automating withdrawals right after you get paid, you’ll make sure your money is put to good use before you have a chance to spend it.
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.
6. 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, you can make it a habit to stick to your budget. 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.