I have seen the value of knowing exactly where I'm spending my money and how much net worth we have in total.
For the last 5 years, my wife and I have been inputting our expenses into an Excel spreadsheet. In a separate spreadsheet, we set our yearly budget based on the data we collect from our expense report and every month we record our net worth.
5 years of data is not only empowering when it comes to financial efficiency but it's a good diary of our life.
In 2013, we spent $662.57 on coffee, in 2014 it increased to $776.56. 2015 was $790.92. 2016 was $838.73. And last year, 2017, it was $881.98.
Knowing that we are consistently spending more every year on coffee tells me that 2018 will likely increase as well. And since our habits haven't really changed in the last 5 years, this data tells me that the price of coffee is rising.
This information allows us to be very efficient with our budgeting. In 2017 we went over budget on coffee by $10. To be able to forecast our coffee spending within 1% of actual spending, a year in advance is the power of expense tracking.
As a diary, I can also travel back in time. On August 9, 2014, we ventured up to York University to watch the Roger's Cup Tennis Tournament. We got a hot dog and a couple of Booster Juice's for $21.50 at the stadiums captive prices. I can still feel the heat from that blistering summer day, that's why we had to get a second Booster Juice.
The interesting thing about budgeting and expense tracking is that setting a budget doesn't restrict us from spending, it actually cuts the chains of being afraid to spend.
Knowledge is power. Information is everything.
For our first wedding anniversary, we went to a 3 Michelin star restaurant in Paris. When we looked online we decided we were going to get the tasting menu, it seemed like a reasonable price for a special occasion. What we didn't read was that the tasting menu was a lunch only price. The price at dinner was 3 times more.
Once we realized our blunder we knew it was going to be expensive but we weren't prepared for what would happen next.
The waiter sat us down at a nice table overlooking the hotel garden. He handed my wife a menu and then handed me a different menu. Opening our menus, my wife was confused. Something was missing.
Her menu had no prices.
At this point in our lives, we were not prepared to pay for the most expensive thing on the menu especially at a restaurant like this. She didn't know whether she should get the fish or the duck. Without complete information, she could not make a decision.
Fortunately, my menu had the prices. All I told her was "Don't get the blue lobster!".
Before we ordered our food, the waiter asked if we would like still or sparkling water. Again with no prices we hesitated and choose sparkling water. It couldn't have cost that much I had hoped. Sparkling water was 12 euro per bottle. Ouch.
The sun had set, the mood lights were lit, and the end of the meal was near. From across the dining room, we saw a waiter rolling a cart with a silver cabinet resting on top. To our wonder, she stopped at our table and opened the hinged doors to each side. The LED lights blinded us for a moment, it felt like walking through a dark tunnel towards the light at the end. Once our eye's had adjusted it revealed a child's dream, desserts! Macaroons, truffles, chocolates, cakes, and candies, all handcrafted.
She asked what we would like. But we were too afraid to ask how much this would cost. Like the water incident earlier in the evening, we just rolled with it and asked for 2 pieces each. Considering the actual dessert menu was 32 euros per dish, we were understandably intimidated by this dessert cabinet. That was when the head waiter came by and insisted we take a couple more. I almost died as he was placing macaroons on our plates.
Turns out the dessert cabinet was an added bonus at no extra charge. But without that information, we couldn't act efficiently. Had we known at the time, we would have filled our plates up.
The more information you have going into any situation, the more confident you can be in making the best decisions.
Just like our anniversary dinner experience, we don't want to be caught off guard without information. Knowing how much things cost, how much we can afford to spend, and what you can get for free is incredibly important.
You'll save a ton of money and live less stressful life.
Excel spreadsheets might not be the way most people want to track their finances. It works for us because we are comfortable using Excel.
We record transactions as they come in like this:
We have another tab which adds up each category by month and compares against our budget. The Excel formulas get a little more complicated. Learning how to manage this with Excel is very valuable and a highly recommended skill, but for those not willing to learn, there is software for this.
Mint or YNAB (YouNeedABudget.com) are a couple that can get you started.
The key is to just get started.
If daily expense recording seems like a hassle then start collecting receipts and set 15 minutes on Sunday morning to tally them up. It really doesn't take that much time to know where all your money is going.
Save Money Retire Early is written by Jon Lo, a barely 30 something change optimist, and personal finance guy. I believe anyone can be rich or poor, it's what you save that makes the difference.