If it's not in, it's out

Greetings readers,

Hope you are all well and enjoying this last day of 2020. Damn, it felt like a whole decade. 

In my first post we set the stage for what would be the start of our journey towards financial discipline and why we should act sooner rather than later. Let us now get our hands dirty, figuratively. 

If you search around the web for guides on financial education and blueprints on how to get a handle on your personal finances, most resources will point at Budgeting as being the first step in the process. While I agree this is indeed an important early step towards achieving financial discipline I would argue that the absolutely first action should be to take stock of your incomings and outgoings. More precisely: what is your income and what are your expenses? This should not be a ball-park estimation that you scribbled on the back of a napkin, but should consist of factual data gathered over at least 3 months. 

Yes, I know that some would say that this is a useless exercise since we know very well how much we earn and how much we spend as everything goes via our bank account and if our account is in the red at the end of the month the conclusion is simple: we spent more than we earned. But what actually happens when we take the time and the effort to track our expenses, categorize them and draw conclusions based on 2-3 months worth of data points, is that we visualize what exactly we are spending money on. This is powerful stuff as it gives us the power and oversight into what is keeping us back from achieving our goals (or, what's kicking us in the arse every month). 

Are we splurging too often on Cappuccinos and Lattes at our local coffee place? Are we buying clothes online that we hardly ever wear or they're so poor quality that you can only wear them a couple of times before they're thrown away? What about alcohol and cigarettes (or those damned pods for vaping)? Are we paying subscriptions that we are not using? Is our phone subscription still worth the premium price we are paying for extra gigabytes of traffic etc.? Whatever it is, tracking our expenses can shed light into these dark corners of our finances.

So how do we actually get started? Let me break it down in a few simple to follow steps:

  • Make a note of the data sources to be used.That is note down the banks/bank accounts you use, if they are checking/debit accounts or credit cards and if you keep cash money around. This should not be fancy, you can just gather your thoughts on a piece of paper or in a word document if you prefer to have it digitized. 
  • Audit your spending habits.
    If you typically buy things with your debit/credit card that means your banking app would give you an accurate idea of your expenses over the last 3 months.
    If you have a mix of spending done via card and cash or predominantly cash, then I recommend looking at the next 3 months, so that you can track your spending as it happens.
  • Track the expenses! Remember, this is not the moment to overthink the exercise, or dive into complex tools and lengthy spreadsheets etc. KISS! (keep it straight and simple)
    All you need is a spreadsheet. I prefer MS Excel because I've been working with it since school, but you can use any other spreadsheet application. An obvious choice would be Google Sheets as it is free of charge (yeah, yeah, I know... Google has your data and by using their free software you're signing your soul for the devil... but honestly, if you are using the internet for anything Google already knows everything there is to know about you). So what and how do we track?
    • Create 4 columns: 1. Date; 2. Type of payment (credit card / debit card / cash); 3. Amount; 4. Brief description
    • Add the information chronologically. Either from the beginning of the period till the end or in reverse. 
    • Once a month is complete (including debit and credit card charges + cash payments if any) insert a total on the third column. That will give you the total expenses for that month. 
    • For the other months you can continue in the same columns or copy-paste the structure next to it and fill it in for each month separately.
    • Insert below the totals of each month the total recurrent earnings (salary, commissions, fees - depends really on your occupation) for that period. The difference between this and total of your expenses will be your net result for the month. If it is positive it means you have earned more than you spent and your balance is positive. Otherwise, you're in the red.
  • Scroll through the expenses logged for each of those 3 months and see where savings can be made.
    Typical categories to look out for are: subscriptions to services you may no longer use/enjoy but never realised you are still paying for them; discretionary spending such as eating takeaway food, ordering in, coffee to go; clothing spending; other miscellaneous items. Groceries are the last to look at but definitely not to be neglected as buying your groceries from a cheaper store while maintaining the same quality can result in a significant saving.
  • Write down the actions resulting from analysing your expenses and assign deadlines to complete each action. 
    For example:
    • Gym subscription - not used due to the global pandemic and gyms being closed > to cancel >by end of week.
    • Uber rides to grocery shop - is there another store closer to home? can you order online instead of going to the store? > to limit Uber rides > by end of month
    • Takeaway coffee - average 3 coffees per week > to reduce to 1 coffee per week > to implement as of this week.
  • Continue tracking your monthly expenses after the exercise with the 3 months is done. At this point you may want to use a tool (app, software) to do it more structurally and give you also better data analytics. I've included a link to a not so well-known tool but which I find extremely versatile and useful. The app is freemium, has no ads and the creator is committed to not selling people's data. The free version has all the tools you need for the basics we are covering here. 

This last step is the one that will lead you into budgeting your income in advance and it is the portal towards no longer living paycheck to paycheck. 

If you got until the end of this article (and actually read through it) I salute you! If you found it helpful, I would appreciate if you could give it a thumbs-up. Tipping is not mandatory but well-appreciated! If it convinced you to give expense tracking a go, leave a comment below and let me know if you have any questions. 

Take care


The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial, legal or tax advice. The content of this article reflects solely the opinions and beliefs of the author, who is not a licensed financial advisor or registered investment advisor. The author strongly recommends that you perform your own independent research and/or speak with a qualified professional before making any financial decisions.



How do you rate this article?



Happy Hour Finances
Happy Hour Finances

This blog aims to tackle personal finances matters, from the more basic concepts that can be applied in every day life to slightly more advanced concepts that require a certain degree of being intentional with improving your finances.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.