Track your spending. Or not.
One of the most universal bits of advice from financial planners is to track your spending. It's also one of the most universally rejected bits of financial advice--rejected by people who find it tedious and fiddly. In the interests of making everybody happy, I'm going to come down squarely on both sides of this issue.
Anybody who's actually developed the habit of tracking their spending will assure you that it takes virtually no time at all. So, I think the reason that people object to it is not really that it's tedious or fiddly. The real reason that they object is that they're not the sort of person who needs to worry about every penny.
And, of course, they're right. Although the pennies do add up, nobody makes or breaks their finances with the little indulgences here and there, whether they're $5 microbrews at the bar or splurging on the name-brand facial tissues. What breaks your finances is usually either a huge, unavoidable expense (the uninsured loss of something you simply have to replace, medical bills, a lawsuit) or else a sharp drop in income in the face of fixed expenses that had previously been manageable.
Neither of those situations is really helped much by tracking your spending. You know what your major fixed expenses are, and you know what your huge unavoidable expenses are. What's to track?
Given that, why does every financial book suggest tracking your expenses?
There's gold in your small expenses
They aren't the expenses that break your finances, but they are the expenses that make it hard to accumulate capital, which is a key step toward the security and independence that your financial planners want for you.
I'll spare you yet another overhyped example of how much money you'd have if you saved an extra $7 or $70 a week and let the interest compound, except to note that if the timeframe is the rest of your life, it amounts to quite a bit of money.
This is really the less important reason, though.
You have no idea what you spend your money on
Even if you've tracked your spending in the past--but especially if you haven't--you actually have no idea how much money you spend on that second tier of stuff, after your ten or twelve biggest expenses. And if you knew, you'd spend that money differently.
That's the reason that all the experts want you to track your spending. I can guarantee you that, if you actually go through the exercise, you'll discover that there are things that you spend way more money on than you realize. Maybe it's nights out with the boys, maybe it's sodas bought out of the machine at work, maybe it's nice clothes from the department store. I don't know--and neither do you. That's why everybody suggests that you track your expenses.
More fundamentally, though, your spending doesn't match your true values.
If you're already tracking your spending, you've no doubt already discovered this.
If you're not tracking your spending, each small extravagance stands alone as something that gives you pleasure that's worth the price. It's only when you start keeping track and aggregating those small extravagances that you see that they don't really stand alone--each one stands in relation to all the others. One soda from the machine is no big deal. A soda from the machine every day begins to add up. But it's not the dollar total that really matters, it's the things you didn't buy, that could have been bought with that money--things that might have made you happier than the things that you did buy.
So, track your spending. Or not. But understand that the question is not whether you're the sort of person who needs to worry about every penny. The question is, are you the sort of person whose spending aligns closely with your true values? Or, are you the sort of person who doesn't know whether your spending aligns with your values or not?
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