A Budget Will Set You Free

When I started working full time, I was doing a decent job of being somewhat frugal and saving money. I’d go out to eat a couple nights per week and maybe grab a few beers, I’d golf every now and then, and I’d save the rest. All was good!

Or so I thought. Eventually I looked at my expenses over the previous month and my mind melted. I had spent over $1000 going out to eat. Over $1000 on food and beer for just myself! Even more shocking, it was a trend that had been ongoing for many months. That extrapolates to $12,000 per year for food from restaurants for one person, not even counting groceries. What??? Even if I had cut that in half, I’d still have had an above average dining budget and I would have been able to pay rent for six months with the savings.

All I had to do to recognize this problem was look at my expenses from the previous month. I had to download a budgeting app, add my bank account/credit card info, and look at the list of transactions. It took maybe 15 minutes from the comfort of my couch, and it exposed a black hole in my checking account that thousands of my hard-earned dollars were being swallowed up into.

I didn’t know what I should have been spending every month on dining, or gas, or really anything. But the important thing is that I finally knew what I was spending on dining, gas, and everything else. And even without targets or thresholds in place, I could identify where the majority of my money was going, and decide whether or not those things actually brought me joy. Little did I know at the time, this was my first step down the path to financial independence: identifying expenses that don’t provide me value and reallocating that money to things that do.

This was not a unique situation. If you’ve never observed your expenses over the course of a month, maybe a couple of months, you almost certainly have some money sneaking out of your bank account in a leak that you don’t even know exists. And you’ll absolutely benefit from knowing exactly how you spend your money every month.

I’ve mentioned before how similar personal finance is to dieting, and it remains true here. Many people have no clue how much food they consume throughout a normal day. Some fries with lunch, a beer with dinner. These things are small in the moment, but track a full day’s worth of calories and suddenly these small indulgences are what push people over a normal calorie count. It doesn’t take long for that surplus of calories to start having negative effects.

It’s more of the same when you take a look at your expenses. It’s easy to brush off a fun $50 splurge or that $10 steak and cheese you ordered the other day because they were one time things. Except, they happen every week, sometimes multiple times per week, and suddenly you’re spending $500 and you don’t even know where the money went.

How you decide to monitor your expenses is up to you. If you put most of your expenses on credit cards (you should), you can just look at your credit card statement and categorize each expense manually, or you can have everything tracked and grouped for you automatically by using an app like Mint or You Need A Budget. You can also keep track of each transaction in a spreadsheet or even a note. Use whatever method makes the most sense for you.

Expose all of the small expenses that are currently hiding from you and I guarantee you’ll be surprised at what you find. After a couple months of tracking, you can set up limits for each expense category, which will help you maintain more predictable monthly expenses and therefore provide you a more consistent ability to spend less and invest the difference.