If you want to build wealth and become financially free, there are two levers you must be in control of: money coming in (income) and money going out (expenses). Each of these come more naturally to some than others. Some people are great at earning income, but they may also spend a lot. This is called living “paycheck to paycheck” and though usually associated with low income households, many high-earners live paycheck to paycheck as well. But we are not going to live this way no matter how much we make! We want to spend way less than we earn, take that difference, and invest it into things that generate more income for us (assets), such as stock market investments, real estate, businesses, and invest in ourselves through education, personal development, mastermind groups, and more.
As military members, our ‘money-in’ lever stays fairly stable thanks to the Federal government. Therefore, tracking our expenses and being intentional with how we spend money is a crucial skill to master in order to build wealth. My dad calls this “living below your means.” If we make $4,000 per month but only spend $3,000 per month, we have $1,000 left over – $12,000 per year – to invest in assets, education, and personal growth.
There are many people, companies, and websites trying to get our hard-earned cash. Some of our expenses are necessities like groceries (I hope you shop at the commissary), rent or mortgage, gasoline, clothing, etc., but Americans spend a lot of money on things that aren’t necessities. We must make sure we’re spending only on things we need, and buying things we want only after we have already set money aside for our future. Let’s dig deeper into why you should know where your money is going.
Benefits of Tracking Your Expenses
Hidden Fees – Finance and banking companies make a ton of money from fees. According to chime.com banks in the United States can make $33 billion per year from overdraft fees alone! Other fees include foreign transaction fees, ATM fees, and maintenance fees. Most of these are only a few dollars here and there so we don’t really notice it – unless we are tracking our expenses.
Fraudulent Charges – A few years ago, I had a $250 charge on my credit card from a Yankee Candle store in Oklahoma. Now I like candles, but not that much, and I certainly hadn’t been in Oklahoma recently! So I contacted my credit card company, explained the issue, and they removed the charge and sent me a new card. Thankfully, I track my expenses regularly so I noticed the charge. Many criminals will make a few smaller purchases with your stolen credit card information before making a big purchase, so make sure you’re checking your expenses and contact your bank immediately if you notice a charge you don’t remember making.
Recurring Expenses – One of my recurring expenses is Netflix which is $14.99 per month. My wife and I watch Netflix nearly every night, and we definitely get our money’s worth from this service. It’s easy to forget about small recurring expenses like this, so go through your monthly transactions and get rid of stuff you don’t use anymore!
Budgeting – This is a great strategy to keep your expenses down and could be a whole other topic of discussion. If you create a budget (and I recommend you do), you have to be able to know how much you are spending on each category (groceries, clothing, etc.). It may sound daunting to try and figure out how to track all of this stuff, but don’t worry because its surprisingly easy.
So How Should We Track Our Expenses?
Thankfully there are free resources that can help us out. The two most common ones are Mint and Personal Capital. I have used both and prefer Personal Capital, but I have heard Mint has updated its user interface in recent years so you should check out both before deciding on one. Did I mention these are both free?!
Once your Mint or Personal Capital account is set up, the next steps are simple:
- Add all your financial accounts including checking/savings, credit cards, mortgages, Venmo, everything!
- Go through your transactions and make sure everything is in the correct category. For example, sometimes a gasoline charge will auto-categorize as ‘groceries’, so you just need to make sure it’s all accurate. This is important!
- Do regular assessments of your income and expenses to have greater situational awareness of how you spend your money. I recommend doing this at least once per month. Set a reminder on your phone, or add this task to a habit you already do once per month, like paying rent and other bills.
Tracking your expenses is a simple way to start taking control of your money and build wealth. It only takes a few minutes to get started and you’ll be amazed to find where your money is actually going. Once this becomes a habit, it will help you be more intentional with how you spend money.
Take action today!
Do you know of other good reasons to track your expenses? Comment below! You can also send me an email directly at doug@honorandequity.com
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