Take the Challenge: The Spending Diary
The following is a guest post by Brian.
A spending diary can illuminate exactly how you are spending your money. Perhaps you make some casual purchases that are put under the rug. Take the challenge – in two weeks you’ll have some interesting information on expenses. It can form the groundwork for making real improvement in your budget.
Isn’t This a Budget?
If a spending diary merely tracks every single purchase you make – aren’t we just recreating what you do in your budget? Not exactly. There are two reasons for this:
First, some budgets do not track every expense you make. If you don’t put your daily coffee, for instance, in your budget, then you’re missing opportunity. You’d be surprised as to some expenses that go unnoticed, from the perspective of your budget.
Secondly, some sources recommend the element of the diary. That is, you should put a note about the purchase. Then, when the “challenge” ends and you review your purchases, you can see why you made the purchase and compare your feelings – then and now. You can understand how impulse purchases work for you.
That is the challenge. Two weeks. Keep track of every single expense and add a note or two about the purchase. If you’re ready for it, read along as we look at something that you might realize from the period.
Notice Something Funny?
There’s nothing funny about wasting money. This is why the spending diary is so effective, as you can realize expenses that you make that might not be worth it.
Let’s take some examples of common “wasteful” expenses. You might get a daily coffee, go out to the bar a couple times a week with friends for drinks, or be spending money on music/apps/etc via your smartphone. If you find something on your spending diary that looks unnecessary and/or excessive, then you have something from which to act. Consider the expense(s) under the following lights:
Math: If you spend $30 on one area of expense that was unnecessary in those two weeks, then you could have something to work on in your budget. If that were to continue, that’s a $60/month ($720/year) category. Realistically observe the frequency of that expense area to understand how big of a pitfall it is, currently.
Value: Some purchases are “empty.” Impulse purchases and expensive restaurant items can simply be a waste of your money. Look at these purchases and why you made them in your diary. Do you regret it/them? What could you do in the future to avoid it/them?
Take the spending diary challenge. There is always room on both sides of your budget – from the car insurance comparison and term deposit rates to easing up on “extra” expenses. Don’t overlook any major aspect, from savings and investments to much more.
The spending diary challenge can help you understand two things: “what” and “why.” Do you understand what you’re wasting money on, and why? Once you take this challenge, you’ll understand how to improve matters. Give the spending diary challenge some serious thought and take the next step in your finances.