One Simple Trick to Save more Money…
Have you ever wondered where your salary went?
A Typical Scenario
After receiving your salary at month’s end, its easy to think about what you want to spend it on. Perhaps that nice piece of shirt or dress you saw the other day? Maybe that new smartphone you’ve been eyeing for a couple of months or that cool new VR headset that you saw Youtuber PewDiePie using. More often than not, we find ourselves struggling towards the end of the next month, having to scrimp on our meals because we did not manage our expenditure well. Some even resort to raking up credit card debts that would run you at least 15% interest per annum in the United States and as high as 25–27% in Singapore, paying only the minimum repayment sum would be disastrous in the long term. Letting the rest of the owed amount snowball their way to a small fortune(for the banks). YIKES!
In the first quarter of 2020, the average credit card interest rate in the US was 15.09%, according to data from the Federal Reserve.
According to a credit card comparison website, interest rates on credit cards in Singapore are 25–27% interest per annum as of July 2020.
The Solution? — Track your Income and Expenses
You would have to keep track of your daily transactions, only then would you truly have the ability to move forward and optimize your expenditure.
It all started 3 years ago for me, I was fresh out of college and have just started my career. Receiving a salary every month was exciting and spending my newfound purchasing power was great. However, overtime I realized that I was spending my money very quickly and did not have the slightest clue where it all went. It was hard to pinpoint any one single category or categories that was consuming much of my income. It then dawned upon me that I had to keep tabs on my expenditure and income. It was the only way to enable a proper evaluation of my expenses every month and to subsequently cut down on any unnecessary spending.
You can’t optimize something when you’re not tracking or measuring it. It is akin to a business without an accounting system to record earnings, assets and cash flow for the company.
Benefits of tracking your expenses
Fast forward to today, I now have a complete overview of what I am spending on each month. The top three categories were Food and Beverages (34.0%), Travel (22.1%) and Insurance (13.8%) based on my full 2019 expenditure. I have since then started to cook more meals at home and plan my travels to nearby countries instead. I have also restructured my existing insurance plans for an increased coverage while spending lesser on insurance premiums. All those extra savings then went into investments to grow my net worth for early retirement.
Summarizing the benefits:
- You have visibility on what you are spending on
- You can question and reflect on what is necessary and what you can cut back on
- You save more money when you cut back on unnecessary spending
- More money for investment and compounding effect to take place
Recommendations to implementation
There are various options to start tracking your expenses but practicality and convenience are the top considerations in successfully implementing a system to track your expenditure.
While you can do it on a spreadsheet, it isn’t ideal as you would need to build a template to record your daily transactions and also you can’t do it on the go. This is not practical as most of us might have forgotten our transactions after settling down to key in the information on our laptop/desktop. Also to build a template from scratch would present a huge inertia for most people to give up recording their expenses all together.
A more modern and convenient way to track your expenses is through a smartphone or web based application, preferably one that offers insightful visualizations to illustrate your spending habits. This would allow you to quickly and easily enter your purchases the moment you incur them. It is also helpful to tag each expense to various categories in order to aggregate the spending based on categories.
A more modern and convenient way to track your expenses is through a smartphone or web based application, preferably one that offers insightful visualizations to illustrate your spending habits.
The next step is to key in your purchases consistently and after 1 month, you should have formed the habit of keying in your transactions on a daily basis. After 6 months to 1 year, you should be able to reap the results of being consistent — to have the visibility on the categories you are spending the most on and reflecting which category requires cutting down on.
Hopefully this article helped you to cut down on your spending and be that much closer to being financially free. Lets get trackin’ ;)
Comment down below if you think I should do an article on the best expense tracking apps we should use!
