Five reasons why I track my expenses

Tracking your expenses is the single most important first step on the journey to FIRE, I believe. What gets measured gets done – I don’t know who first articulated this saying – but the idea is you can manage something if you can measure it. 

We can research high interest savings accounts or how to invest or which stock to invest in; but until we know where our money currently goes each month, we simply cannot make decisions on where we would like our money to be invested in, moving forward. Or decide where we can save or where we can reduce our spending.

Related: Savings rate

Tracking your expenses helps you to answer this question – How much money will I need at retirement?

Everyone, whether they are on the FI journey to retiring early or pursuing traditional retirement always asks this question first. But without knowing how much you spend on living expenses now, you simply cannot answer this question.

There are websites such as the Australian Securities & Investments Commission’s Money Smart, which suggest that annually, a single person needs $27,368 for a modest lifestyle or $42,764 for a comfortable lifestyle; while a couple requires $39,353 for a modest lifestyle or $60,264 for a comfortable lifestyle.

But do you need more or less than what is suggested? Do you currently spend more or less than those figures? Without tracking your expenses, you don’t know which is your biggest category of expenses. And whether or not you are willing to cut or reduce this expense or even if you could do so. For example, your biggest expense may be your mortgage payment; in which case, you may decide to increase this payment so your house is paid off before you retire.

There may be expenses that you currently pay for your professional career which you will eliminate once you retire, such as any professional association fees, licence renewal fees or professional indemnity fees. You may also not want to eliminate these fees initially, just in case you need to return to work later for whatever reason, even in a part time or casual basis.

Conversely, you may pick up hobbies or interests that you have been delaying until you retire. You now have TIME to pursue these activities. You may decide to travel more, take up photography, start painting, learn a new language … the possibilities are endless.

And what are your recurring expenses? Utilities such as electricity, gas & water – how will retirement affect these bills? You may spend more time at home once you retire and thus use more electricity for heating or cooling or just keeping the lights on. Are there ways in which you could reduce this area of spending now?

How about medical costs? In Australia, we are lucky to have the Medicare system which ensures that you can access medical treatment if you need it. But it may also take years if the procedure required is deemed non urgent or elective. So do you need private health insurance? The older you are, the more expensive your private health insurance cover is.

Of course besides money, you need to work out what is of value to you; what you value in your life should determine how you want to spend your time in retirement. Then you can direct your money towards making that life a reality.

And this question – How much do I need to save before I can retire?

It depends entirely on how much you want to live on during retirement, as we have established above. The convention is to use the 4% rule which is to save 25 times your living expenses, assuming that your current living expenses will remain the same in retirement.

So we are back to needing to know what we currently spend on living expenses – which leads us to the need to track our expenses. If we don’t know what we are spending now on living expenses, we cannot work out how much we need to save before we can retire.

Tracking your expenses helps you decide which expense you can cut altogether or reduce

If we want to retire early, we need to know where we can save and where we can reduce or eliminate an expense completely. I thought I had a pretty good idea where my money was spent. But I was surprised by the cold hard facts since I started tracking my expenses six months ago. And by how much my expenses vary from month to month.

Did I really spend nearly $2000 on the garden last month? The answer is yes. I can write if off as a one off expense but the answer is still yes, I did spend that much on the garden last month. I replaced my crumbling fence, got rid of some plants & bought new plants but the biggest contributor was labour costs. I have outsourced my gardening for years due to lack of knowledge and time constraints. And frankly, I was too lazy on the weekends. By being aware now that I spend so much on my garden strengthens my resolve to learn how to garden and thus hopefully one day, sack my gardener! Plus I will be learning new skills.

Some months, you look at the expense figures with elation, sometimes in utter despair. Without knowing what you are spending if not per item, at least per category, you can’t make a concrete decision to reduce or eliminate the expense altogether.

Tracking your expenses makes you accountable to yourself

Emotionally we tend to hide expenses from ourselves. We may splurge on a dress and just conveniently forget about it. But if we record all our expenses, we confront ourselves with the truth.

When I saw how much I spent on takeaway food, bought lunches and coffee each month, I took action to reduce this expense. This was an easy one for me to tackle first. I love cooking but struggled in finding time to be organised; to decide on what to cook, when to cook, when to shop. So now I keep it simple – cook two dishes on Sunday that takes care of lunches and dinners to Thursday. And celebrate on Friday evening by cooking a fresh meal with leftovers for Saturday. I go to my parents for a meal on Sunday and take leftovers for 2 more meals. What keeps me motivated is seeing my expenses decrease after I take action. I am one step closer to retiring early.

Tracking your expenses helps you spend with intention

That muffin is going to come up as a line item – do you still need it? Tracking my expenses teaches me to be mindful about what I spend my money on. I don’t automatically get a muffin with my coffee anymore. In fact, a good side effect is I now eat less baked goods after I eliminated takeaway coffee from my expenses.

Related: Frugality Attempt 

I ask myself before handing money over if it is something I need. Or in the case of fresh food, if I would use it before its use by date, thereby reducing waste.

What I use to track my expenses

Personally I don’t like giving my bank account numbers or credit card numbers to third parties. So I use the free app from ASIC’s Money Smart website – TrackMySPEND.* It may not have as many categories as some of the other apps but it is sufficient for me. As you start reducing your expenses, the less transactions you will have to enter.

If you don’t already track your expenses, I encourage you to do so. It definitely helps you to focus on what is a necessary expense and what perhaps you can do without. It is exciting at the end of the month to celebrate your wins and look at ways to improve on the other areas.

*Edit – this app is  no longer supported and not available for download anymore. These days in 2021, I use WeMoney app (affliliate link – we both get $5 and they plant a tree when you sign up using my link and connect to a financial institution) I have also gotten over handing my bank account details to a third party for the convenience of being able to see everything in one place on my phone.





Frugality attempt

Red coffee moka pot on stove | frugality attempt
My trusty moka coffee pot

In my previous post on savings rate, I established that I needed a 70% savings rate if I had any hope of retiring at 55 ie I needed to save 70% of my take home pay. Currently my savings rate average around 55% so I have my work cut out for me! At this rate, it will take me 14 years to retire which means traditional retirement instead of achieving FIRE 😞

Disclosure: Please note that I may benefit from purchases made through my affiliate links below, at no cost to you

So ... how do I improve my savings rate?

There are only two ways to improve my savings rate – decrease my spending and/or increase my income. Increasing my income would involve asking for a pay rise or working more hours or getting a second job or as they call it in FIRE circles, a side hustle or two. I already work long hours and my current job is stressful so working extra hours here is just not palatable. Note to self – check out side hustles.

Hmmm …. if increasing my income is not readily achievable then that leaves decreasing my spending …

I am not a frugal person by any stretch of the imagination. After all, you can’t take your money with you when you die so why deny yourself that little luxury or extra comfort in life if you can afford it? As long as you can afford it, why not? That has been my philosophy towards spending money since … forever. So I need all the help I can get for this project!

Mrs Frugalwoods' Uber Frugal Month Challenge

Fortunately, I came across Mrs Frugalwoods’
Uber Frugal Month Challenge and decided to participate on a whim.

I need to get this off my chest now … I LOVE Mrs Frugalwoods and her
family and her life. It is addictive reading about people far away who
have embraced frugality to the extreme (vs my way of living) and are so
genuinely happy about living with less. They achieved FIRE at 33 and
moved to a homestead in Vermont by living frugally. They are now living their dream lives … how inspirational is that? Read about it in their book – Meet The Frugalwoods: Achieving Financial Independence Through Simple Living

So I’m hoping that participating in the Uber Frugal Month Challenge would kickstart my own frugality attempts.

I decided that the lowest hanging fruit was my buying a cappuccino or
two on days I worked. My coffee expenditure averaged $65 per month over the preceding three months which to be honest, was lower than I expected. Over the previous year, I had begun to reduce my coffees to one a day instead of two or sometimes three. So the plan now was to cut out this expense totally.

I LOVE my coffee … instant coffee was never going to be my
solution. I discovered my favourite coffee roaster, Padre could deliver
freshly ground coffee in 500g bags as a monthly subscription with free
delivery. Problem solved!

My next worry was if I could get up earlier each morning to brew the coffee in my moka pot.

I was pleasantly surprised that I could, indeed! I was also delighted
that this caffeine hit was strong enough to satisfy me and stop me
craving coffee later in the day.

During the Uber Frugal Month Challenge, I bought 3 takeaway coffees
(when I was out with friends), Padre coffee cost $29 – taking my total
coffee expense to $39.25 – so ok, the savings are not massive but hey, I am happy with every dollar saved as that means I have more to invest.
And savings however small, add up over time.

Unexpected additional benefit

But wait, there’s more … my routine had been to rush in the morning and get to my local cafe, cursing about the lack of car parking. Or get to work only to rush out to buy my cappuccino.

I never realised that this was a rather stressful way to start my day. By getting up half an hour earlier, I had time to brew my coffee and perform little chores eg load the dishwasher while waiting for the coffee to brew. It was a much calmer me that arrived to work each day, ready to tackle the stresses of the job.

It is this unexpected benefit that will sustain my making coffee at home in the morning. And fingers crossed, so far so good!

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