One of the most important things you can do to improve your personal financial habits is to track your spending.
If you’re considering a financial overhaul (as I discussed in my last post on reflecting on finances and the one before that which addressed viewing a financial restructure as an opportunity), it’s a good idea to get a handle on your day-to-day spending habits. This information will help your financial advisor identify areas of opportunity to cut back or modify your spending tendencies. It will also help you get a feel for where your money goes each month.
It can be surprising, for instance, how much a typical American spends on dining out. Even if you’re only grabbing lunch every day for $15 and dinner on the weekends for $40, that’s over $8,000 per year in meals, or $16,000 per year for a couple. And that’s a conservative figure! Take that and add it to your weekly trips to the mall, your golf club membership, your annual smart phone update, and dozens of other things that eat up your spare cash and you’ll begin to see where all your “extra” money is going.
Of course, some items are necessities. You probably have set monthly expenses, such as a home mortgage, a car payment, or student loan expenditures. But even these “fixed” expenses are not so fixed. You could refinance your home payment, for instance, or downsize your car, or start putting more money toward paying off your student loan (if that makes sense, given the interest rate). A financial planner can help you rethink your fixed expenses, as well as re-prioritize your spending.
But how can you track your spending in the first place? How can you start compiling information on your personal spending habits?
Fortunately, tracking your spending is easier than ever. You could keep tabs on your spending the old-fashioned way, by keeping receipts and entering them into a spreadsheet under the appropriate category (clothing, food, car expenses, etc.). Or, if you tend to use an electronic form of payment—a credit card, debit card, or apple/android/Google pay, you can automatically track your spending digitally. Apps like Mint or BillGuard categorize your spending and provide charts that give you a breakdown of where your money is going. You can also manually enter expenses that are not captured by a credit or debit card. Another way to approach your spending is to allot a certain amount of money toward certain items each month. The old “envelope system” has been given a digital upgrade through apps like Menvelopes and Good Budget.
Once you get a handle on your spending habits, a financial planner can help you devise a new spending plan and guide you in channeling your money toward areas that make sense to you. Take the time to really understand your goals (both financial and non) and get a feel for your spending habits before meeting with your financial planner. That will make the process of restructuring your finances much easier for both you and the planner!