Simplify

It’s a subtle difference, but I’ve found that focusing on tracking spending and not each and every purchase makes me much more likely to 1) stick to a tracking system and 2) stay on budget. What’s the difference?

Tracking Purchases

I used to use Quicken to track every single purchase. I would keep track of all cash spending in my phone or pda and then would transfer it to Quicken when I returned home. When I received credit card statements, I would import them into Quicken. Because I work on a Mac, this involved manually downloading export files from each financial institution and then uploading them into Quicken one at a time - or paying a ridiculous monthly fee from various financial institutions to automate the process. It was a very tedious solution and as a result, as hard as I tried, I never kept up with it.

Recently, I’ve changed my philosophy. Do I really need to know that on October 23rd, I bought 3 books from Amazon or that on November 12th, I bought coffee from Starbucks. It was overkill. Not to mention, while I love Quicken’s fancy reports and charts, for my needs, it was way too much information. I wasted way too much time staring at pretty charts and too little time actually assessing my spending habits and planning accordingly. It became apparent, i needed to shift my focus.

Tracking Spending

What was the point of tracking all of this stuff? What I really wanted to know was the following:

• What was I spending my money on, at a macro level (food, rent, clothing, fun stuff, etc)?
• What was a reasonable budget for each macro category to strive for?
• What was my overall cost of living?

I figured that macro categories were informative enough to sufficiently influence my spending habits. But were also flexible enough, as to let me not feel too restricted. Thus improving the odds of sticking to the budget. For example, I use the following macro categories:

• Rent
• Utilities
• Food
• Clothing
• Hockey
• Outsourcing
• Discretionary

I don’t drive, so you won’t see things like car payments, gas or car insurance. Hockey is a fixed cost for me and not something I’ll ever give up, so I treat it like a basic need, right alongside food and rent. Outsourcing is something I’m experimenting with and might grow into a broader Business category as I explore alternate sources of income from my standard paycheck. The discretionary category is how I avoid tracking everything from books to coffee to new toys. I don’t care too much about what I spend my money on. I know that if I set goals I’ll adjust my spending and make better trade-offs on which toys to buy. So I set an amount for that category and gauge my progress throughout the month to make sure I don’t exceed it. It removes most of the tedium of budgeting but still keeps me on track.

The key reason why I budget and track my finances at all, is to assess my overall cost of living. While I love my job, my company, the people I work with, etc., my long term plan is to be self-sufficient. Just like a startup, the path to self-sufficiency involves doing two things: 1) reducing my expenses and 2) increasing my personal revenue. By tracking spending in these 7 categories, I can track my key expenses and clearly identify my personal revenue goals.

Instead of tracking every single purchase, once a month, I tally my expenses in each of these categories. I make sure I’m still on track and it also provides regular reminders to focus on my income goals. I track all of this with a very simple excel sheet. No more charts and graphs, just the raw numbers. You can download the spreadsheet, if you want to see just how simple it is.