How I Simplified My Finances
You can treat this article as an introduction to saving money. It’s a simple guide for people who struggle with keeping track of their expenses. If you’re already planning a home budget then you’re already one step further. Although, I encourage you to read through it!
So, the New Year has come. Like every January, we all make tons of resolutions. Some of us want to get fit, some of us want to spend more time with family and some of us want to bring our personal finances into balance. Like every year, we struggle and often fail to keep this resolution.
2015 was a fabulous year for me. It was the year I finally managed to keep most of my resolutions. I started working out, got married and founded my own design studio. Last but not least I finally managed to gain control over my finances.
This last thing is one I’m the proudest of. I found it to be crucial if you want to move further and take control of your life. We live in the age of consumerism and there are temptations waiting around every corner.
We often don’t even realize how much money we waste just because we don’t analyze our expenses. Believe me, you may be surprised how much money you’ve spent on mobile games or alcoholic drinks.
This is money you could save and use as your safety cushion, invest capital or to pay your debts and live a stressless life.
What Did I Learn?
- I was never good at keeping track of my expenses.
- The reason was because I overcomplicated things.
- Simplicity is key: you don’t need an elaborate Excel budget to start saving.
- My sevenmain categories of one expense.
- Taking it to the next level, I made an app to improve the process.
Like most of us, I panic when I hear about home budget planning. I’m a creative person, maths and finance were never my strengths. Hell, I bet many of you have tried this before and failed. We all have our excuses: It’s complicated, time-consuming and the results are poor.
I’m a busy person. When it comes to personal finances I need a tool that is fast and simple.
You know what? I agree. I’ve tried many different solutions before: smartphone apps, Excel, web applications, pen and paper. This hasn’t worked for me. At this point, I’ve realized that this “classical” budget-planning-centered approach won’t work for me. I didn’t have time to spend my evenings with a pen and paper or Excel tables.
The apps that were supposed to help me with my finances only left me confused. Bombarded by tons of dummy data and registration forms even before I got to the app itself.
Most home budget apps I’ve found attacked me with an overload of functionalities. In the end, I rarely got past the welcome screen.
I’m not a financial guru but I’ve managed to collect some knowledge and create a system that works for me. Believe me, if I was able to keep it up, all of you will too.
I have to admit that understanding your spending patterns is essential to keeping your personal finances healthy. The majority of experts say that it is the first step. We’ll come back to the next step later, right now, let’s focus on this one.
Understanding your spending patterns is essential to keeping your personal finances healthy.
As I told you before, I was terrible at keeping track of my expenses. So, I decided to simplify everything.
The biggest mistake we all make is overcomplicating things. I’ve tried to keep an accurate track of my expenses with dozens of categories and side notes. It was too much.
The fun fact is that almost 95% of our expenses can be grouped into just seven categories.
I quickly compiled some research and found that the majority of my spending could be assigned to one of seven categories:
This is where I put everything from mortgage information to T-mobile invoices. Simply all of the fixed expenses you can’t miss, the important ones. Your Netflix subscription goes in Entertainment. You won’t be able to make a cut here easily, but you may realize how much do you spend on your phone and switch to a cheaper contract.
Basically, fuel for my car and public transport tickets.
As simple as it might seem, food. I tried to add an additional tag for every unhealthy snack I ate while in the town which could be switched to a healthier homemade meal (if planned).
As it turned out, mainly mobile games but the fun fact is that I realized I’d been buying too many books, and not reading them. Now I buy a new book only when I’ve finished the previous one (or I’ve almost finished it). You can put things like movies tickets, Netflix subscription, video games, books and so on here. It’s very easy to make cuts in entertainment.
Some of you might be surprised by how much you spend on clothes, I was.
Not only drugs but also things like gym tickets, massages etc.
Alcohol and Tobacco
I was really curious to discover how much I spent on not-so-healthy stuff. This is the easiest part to cut. Just limit the number of drinks at the bar or even wine consumption at home. You’ll feel better overall. I’m getting prepared for a marathon right now, I realized that when I’m not drinking alcohol (at all) my performance while running is much, much better.
You can probably make this work with 5 or 6 but I wanted to check how much money I was wasting on having drinks in the town etc.
You’ve probably realized already that you won’t be able to make significant cuts in a few places: bills or food for example. But it’s important to know how much you’re spending on them. That way, you’ll know how much you’re able to spend elsewhere.
In the blink of an eye, keeping track of my expenses became a lot easier. It was the first step. I still had a problem with collecting bills and taking some time in the evening to write everything down. I realized that the solution is to do this instantly. I mean, I would go to the grocery store and buy bread. I then instantly write it down. It takes only a minute to write down one position and a lot more time and determination to write down ten things in the evening.
I’ve finally managed to keep track of my spending. It was the first step.
The Next Step
Here’s where “my system goes left”. The majority of tools made for personal finance control are built around the concept of budget planning. I mean, you keep track of your spending, analyze it and try to plan a budget for the next month. This is where it becomes really complicated. Planning a budget is time-consuming, and, in the end, not such an easy task for most of us.
I’m a huge fan of planning. I always have my tasks written down. But when it comes to finances I believe, that you can do well without an overcomplicated budget.
I believe that a simple analysis of your expenses can help you save 80% of the money you’d waste. 80/20 principle. If you don’t have a few hours monthly to plan everything, it’s still better to save 80% than 0%. After some time, you can even make it 90%.
So, what should you do? I’ll tell you what I’ve done. I looked through my expenses and realized that I’ve spent a lot of money on entertainment. Wait. When? I barely play any video games nowadays, I went to the movies only once. Oh, wait, how come I’ve spent so much money on clothes? I’ve only bought a few cheap things?
Get it? I’ve taken a while to think about it and realized that I’ve been spending small amounts of money here and there, but when added together, it was some real money. I’m really curious, what is your Achilles heel?
I’m sure I’ve wasted less money just because I’ve had to write it down every time. It made me think “do I really need this?” before buying anything.
Over the next month I tried to pay more attention to my expenditures on clothes, mobile games, or snacks (which I was eating while on the run). It turns out I’d spent a lot of money on snacks and all I got in exchange was fat!
Taking It to the next Level
The system was right but I didn’t have the right tool. As I said before I’m not a fan of the personal finance apps out there, so I’ve been using Evernote for taking notes about my expenses. It wasn’t too comfortable, or practical.
I’m a designer, so I decided to design a tool that would be a perfect match for my needs. I made a quick web-based prototype and got it on my phone. I’ve been using it for more than half a year now and I believe it’s about time to tell people about it.
Say Hello to Blinq
The Blinq is a result of many months of real life research and design iterations. My goal was to design an app that will help me record my expenses as quickly as possible. In the blink of an eye (average person blinks every 5 seconds).
Blinq helps you keep track of your expenses in the blink of an eye. Thanks to its intuitive UI design and Apple Watch companion app you’re able to save an expense in literally five seconds. You can stick to seven predefined spending categories or create your own.
You can also add budget limits for specific categories. Let’s say you don’t want to spend more than $50 on clothes. Blinq will send you a notification if you’ll be closing on this amount. It’ll also mark it as red or yellow in the app UI.
It’ll also help you analyze your spending patterns and take full control of your financial life.
So, this is my story. I believe that knowing your spending patterns is the key to healthy personal finances. You can’t get to know them without keeping track of your expenses. As problematic as it is for most of us, it’s worth a try.
You just need to remember not to overcomplicate things. You’re not an accountant in a corporation, you don’t need elaborate Excel sheets and dozens of categories. Keep it simple. I wrote about my seven categories, try to think about them as a starting point. You may find six sufficient, or maybe even five.
Find a tracking tool that’s right for you: It may be a smartphone app: Evernote, Day One, or maybe, soon, Blinq. It may be even a notebook. Try to write down every expense as it happens. You won’t have to sit with your bills in the evening.
Once in awhile take the time to look through your expenses. See where you’re leaking money. Blinq has this awesome feature that when you spend more than the last few weeks average in one category, It’ll point this out for you. You can try to make it yourself. When you realize you’ve spent too much on for example entertainment, tighten your belt.
And, most importantly, think while making your purchase decisions. Think whether or not you really need it or if you’ll even use it. I realized that it comes naturally when you start making notes about your expenses. That’s why writing down all of your expenses is so important.
A Few Final Thoughts and Tips
I know that this article is not rocket science but I believe that we often need someone to help us realize obvious things.
It doesn’t really matter if you use a web app, Excel or a pen and paper as long as you’re comfortable with it and you keep writing down your expenses.
Do you like my story? Share or recommend it please, I’ll be very grateful!