Do you ever find yourself unable to stop spending money? I’m not talking about $5,000 nights in Vegas, or anything extreme like that. No, I’m talking about your everyday spending. Take a minute to think – how many times did you use your credit card today? How about yesterday? How about in the past week?
If you’re anything like me, the answer to that question is: a lot. I’d wager a guess that you used your credit card far more times than you thought you used it. Small things kept coming up, like a $4 coffee, a $100 pair of running shoes, more soap for your bathroom, some fruit from the grocery store. Next thing you know, with relatively little to show for it, you have a handful of transactions from the last few days alone! Where is all the money going?
See, there are two ways to waste money on material goods. The first is how we often think of it: Outrageous purchases, extravagant trips, credit card debt. But the other, more insidious (and I’d imagine more common) way is to just spend money on small things you don’t need. Particularly with 1-click ordering on Amazon, it’s become far easier than ever to just buy something the minute it pops into your head. I could use a new fleece… Bam! A new fleece shows up on your doorstep the next day.
That is the situation I found myself in a year ago. Spending a reasonable amount of money each month, but still unable to point to exactly what I was buying or why I was buying it. Something needed to change.
My first solution was to use budgeting software. I chose Mint, but Personal Capital and YNAB work just as well – so long as you can link up all your accounts, you’re golden. But the problem with budgeting software is that it’s out of sight, out of mind. Sure, it’s tracking your spending, but all that’s really doing is collecting all those transaction records in one place. It’s doing very little to change any habits.
No, to truly change the habit you have to feel every dollar that is going out the door each month. Back in the day, that feeling might have been accomplished with cash. After all, once you spend the money you have on you, it’s gone. There’s no more until you take more out from the bank. But with credit and debit cards being the main way things are paid for today, there is no emotional attachment to spending. You usually don’t even see the transaction hit your account until days later, when you’re too far removed from the behavior to do anything about it. And often it comes through as an opaque “Amazon” charge that you can’t even remember. Imagine if you gave your dog a treat two days after he did a trick. It wouldn’t work, and neither does our current way of doing things.
My solution to this is simple, and it came to me via Mindy Jensen, the co-host of the Bigger Pockets Money podcast: Physically track your spending with pencil and paper. How important is this to Mindy Jensen? Well, in the year since I’ve started listening to her show, I can’t think of a single episode in which she didn’t bring it up. “Put a piece of paper and a pencil by the door, and write down every time you spend money.” It only took me eleven months to listen to her.
But it works! When I write down each dollar I spend, I stop wanting to spend money altogether. I think about how badly I really need something before I buy it, knowing that anything I buy will go on that piece of paper. Not only do I think about my spending, but I think about how often I’m spending. Did I really need to buy three things yesterday? What were they, and why did I need them? You start to notice how difficult it can be to simply go a week without buying, buying, buying.
Here’s February:
We’re in a pandemic, which certainly influences spending, but I only bought three physical items in February: an REI rain jacket that was on sale, some Draino, and two Kindle books. Only one of those things took up any physical space in my life (I used the Draino!). The rest was spent on food, my cell phone bill and a gift for someone else (the list excluded rent and a few subscriptions like Citi Bike and the New York Times, but those are a given). I wasn’t a prolific spender to begin with, but three purchases in a month is pretty good. All thanks to the list!
There are two common reactions to this: 1) I don’t need to spend less, and 2) That seems like a lot of work. This type of tracking’s not for everyone, and at various times over the past year I’ve thought both of those things. I really don’t need to spend less, and I have too much trouble already tracking things like runs and pushups. Adding one more to the mix seemed like a guaranteed failure.
But even if you’re in the same boat I was, there’s value to this exercise. For one thing, it’s extremely easy: Put the pad and pencil next to your work from home setup, and you will not be able to ignore it. Every time you see it you’ll be reminded to jot down your latest spending. And for those who feel they don’t need to spend less, great. But there’s no harm in seeing exactly what you’re spending. If you’re like me, you may come back from a Saturday with friends and realize you bought five, eight, even ten things in one day! Just by laying it all out on the page you may realize that there are changes you could make. Or by adding it up at the end of the month, you might see just how much you’re really spending in any particular category.
The simplest solutions are often the most effective. Give it a shot this month and let me know how it goes!