Our previous blog was all about identifying and setting goals. But if we’re going to work together to make our dreams come true, you’ll need to start thinking about the finer-grained details to make these dreams a reality and have a financial budget.
If you’re an average person on an average income, you’ll need to be committed and self-disciplined. If you’re on a high salary, then the good news is your task is easier. But even then you’re still going to have to rein in that discretionary spending.
Ellie and I are on perfectly reasonable — though unremarkable — salaries. But if we weren’t restrained with our spending, we wouldn’t save anywhere near as much as we do.
But before you can start saving serious money, you need to know exactly where your money is going. Every dollar and cent of it.
Start controlling your financial situation
When we first moved in together, we started a spreadsheet that tracked every expense we had: the date, the category (eg: groceries, fuel, clothes, etc), the retailer, details (eg: bread and butter, new shoes, etc), and most importantly: the cost.
While this might seem over the top, tracking these expenses was invaluable for understanding how much we paid for products and services. It also allowed us to delve into where we might be able to save extra money — trim the fat, so to speak. Although we were already both pretty good savers, this process really helped us.
In fact, we saved 5.5% on our expenses in 2017 compared to 2016 ($22931.78 compared to $24,222.25). That’s despite swimming against a 3.2% inflation tide in that time in Australia — a remarkable outcome!
For us this budgeting became a fun habit. We even managed to gamify it — can we save more on food one month compared to another? How much can we lower this weekly bill compared to the last? You won’t win every time, but it helps to motivate you.
Even to this day, we still have a running spreadsheet listing every single expense we have. It’s now been three years where we’ve done this, and nothing has changed since the start of 2019.
Tracking our expenses allows us to see exactly what we spend money on, and identify where we might be able to save. More importantly, it helps us project how much money we’ll have to invest — the key part of building wealth.
Paint a picture of your spending
Tracking your expenses is easy. You can even start today. Just remember to always ask for receipts when you buy something (or print them out yourself if you go to an automatic check-out). Having receipts on-hand is easier than trying to remember what you bought — especially on big shopping days when you go to multiple stores.
The real secret to budget tracking is including every single expense over a period of time. That means every store-bought single coffee. Every bus or train ticket. Even the smallest of things. A dollar here and there can really add up before you know it. So you need to paint a full picture of your financial expenses.
If you include all of your expenses, you might be surprised to see how much you spend and how quickly it all adds up. If you’re the type of person who earns decent money, spend a bit here and there, but feel like you don’t have any ideas where all the money goes and how you always end up struggling until your next pay day, then this process is invaluable. Trust me — tracking your expenses will open your eyes.
We also recommend using this free government spreadsheet to help you see how much you can save once you cut back on certain expenses, or what happens if you can boost your income.
To help you account for all of your income and expenses, you can see a list of our income and expense types at the bottom of the article, as well as a list of other expenses you may need to consider for your own life.
We’ll talk about how much money we save, what our actual budget and spending is in shortly in upcoming articles.
If having a dream is the first step towards financial freedom, then having a budget and starting to take control of your money is where the rubber hits the road.