With the official start of Spring right around the corner, I thought it would be fun to do a spending challenge. You might have heard me mention in the past, that to maintain a realistic budget, it's always best to give your budget a “Spring” cleaning every six months or so. That means going through your budget line-by-line, reducing expenses where you can, unsubscribing from subscriptions you no longer find valuable, and doing a complete overhaul of your spending.
So why a spending challenge? Your budget isn't worth anything if you're not tracking your spending. It's the only way to see what you are spending your money on. Tracking your spending is black and white. The numbers don't lie. When I started tracking my spending almost six years ago, I was utterly appalled. It was a complete surprise that I was spending almost $500 a month on clothes and over $900 every month for food. That doesn't include other ridiculous ways I was wasting money.
Unlike so many other people, tracking my spending forced me to make a change because the truth is, you can't change something if you are unaware that change is needed. It forced me to take a hard look at my finances and decide what was really important to me. What did I really want from my money? It was an opportunity for me to take action, and I took it.
Here are some of the ways tracking my spending changed my life, and my budget.
IT ALLOWED ME TO CREATE A REALISTIC BUDGET
Before I even sat down to create a budget, tracking my spending was the first step. It was also the most painful step. I fought it every step of the way, and at first, I failed. It was just too darn depressing. To be honest, I wasn't ready for the reality of what my spending actually looked like.
I knew that in order for me to make a real change, I had to understand the problem I was about to tackle. Even though it was the most painful part of my journey, it was also the most important. It allowed me to understand exactly where my money was going. Knowing how much I was spending on my mortgage payment or my car payment was easy. Those expenses didn't change much, and they still don't. But other categories I wanted to put in my budget were completely unknown. How much are you spending on groceries every month? How about gas?
Tracking your spending for at least 30 days before creating a budget will give you a really good starting point for creating a realistic spending plan for your money. You will be able to decide how much to write down in your budget for every category based on your spending history for past 30 days. From there, you can make adjustments if needed.
After I finally got over my fear of seeing where my money was actually going, and creating my first budget, I was able to reduce some of my categories by nearly 30%. I started off by using values from tracking my spending, and then reduced that amount for my budget in the areas I knew I was spending too much. For example, if you find out that you are spending over $1,000 on food every month, figure out why. Go back to your tracking sheets and see where your money actually went. If you notice that $500 of that $1,000 was for eating out, you need to be able to ask yourself, “Do I really need to spend $500 eating out?” Probably not, right? Reduce eating out to $150 every month and allocating the rest of the money towards other areas of your budget that you find more important, such as debt or savings, is so much more rewarding.
IT ALLOWED ME TO GIVE UP MINDLESS SPENDING
Have you ever met someone who made a six-figure income, but they are always complaining that they are broke? Why do you think that is? Most likely it's because they spend, spend, spend, and never have a clear plan for where their money is really needed.
Having a budget is critical, but sometimes it's just not enough. If you are spending all of your money without a plan, it's easy to find yourself in the red every month. Even without a budget, and just by tracking your spending, you might uncover some pretty painful numbers.
I had no idea I was spending $500 a month on clothes, and seeing that was painful. But it was also a wake-up call. It allowed me to see that I was spending without even realizing it. Do you think you are spending $400 a month on groceries, only to realize you are spending $900? Or maybe you are mindlessly spending money eating out for lunch every day. It might not seem like that much money when you go to McDonald's for their $1 value meal, but when you tally up the expenses at the end of the month, you might realize that you could have done something more meaningful with that money.
The truth is, tracking your spending is very black and white. The numbers don't lie. There is no way of avoiding your problems areas when it comes to your spending when you track where your money is going.
IT ALLOWED ME TO FIGURE OUT WHAT WAS REALLY IMPORTANT
After tracking my spending for the first time, I realized that I was spending money on things that weren't that important. I knew I had long-term financial goals, but I had no idea on how to get there. So I made slow progress when I could, and only focused on them when I came into some extra money. Have you ever wondered what the real purpose of a budget is? Is it to just limit where we spend our money? Is it just another financial tool in our toolbox? The primary goal of a budget is turning our long-term financial goals into reality. Tracking your spending is that one additional step that is crucial for success.
It's time to start questioning yourself. When you finally find out where your money is going, ask yourself, “are these expenses getting me to where I want to go?” Are they in line with your priorities and what matters most to you. If they are not, then it's time to make some major spending changes.
Don't get me wrong, your priorities will change with time, and that's OK. A realistic working budget changes when your priorities change. Maybe you want to focus on debt payoff this month and saving next month. The most important thing you can do is review your priorities at least once a month and make changes to your budget where necessary.
THE SPRING SPENDING CHALLENGE
For the month of April, I wanted to take time to Spring clean my budget, and I thought it would be an amazing opportunity to get TBM readers involved. So, here is how the Spring Spending Challenge works:
TRACK EVERY DOLLAR
For the whole month of April, we are going to track where we spend every dollar of our money. Yes, every dollar! You can track your spending in any way that's easiest for you. Whether that's using an Excel spreadsheet, pen and paper, or a spending app on your phone. If you are like me, pen and paper is the most comfortable. So, for the purpose of the Spring Spending Challenge, I am giving you FREE access to one of my paid budget printables.
The Spending Tracker inside of the Budget-by-Paycheck Binder is the tool that I will use throughout the challenge. Use the Spending Tracker to record expenses and income. If you use multiple bank accounts, make sure to write which bank account the money came from on the tracker. In the description area, write a detailed description so you can reference where your money is going at the end of the challenge. If you need to, keep your receipt and split transactions at home if you buy multiple budget categories in one shopping trip.
Make sure you also keep track of all spending that is done online. That includes bills that are paid online, online shopping, and even credit and debit card transactions. Don't forget to include automatic bill payments if you have them set up. Not only will you keep track of your spending throughout the day, but make sure to hop online and check your bank transactions, so no expense is left out. The easiest way to make sure a transaction is not missed is by recording the transaction at the time it happens.
The goal of the challenge is to get a clear picture of ALL of your spending, so it's crucial to include every single transaction you make during the next 30 days.
CASH ENVELOPE METHOD
Besides tracking our spending, we are going to take it one step further. Is there one area of your budget where you constantly feel like you overspend? For me, I always go a bit crazy on my food budget. It's the one area of my budget where I have to pay close attention to how I am spending my money. One of the things that has helped me is the cash envelope method.
For the challenge, I want you to take ONE area of your budget, and use the cash envelope method to help control your spending. For example, since my problem area is my food budget, if I allocate only $150 per paycheck on food, that's how much cash I am going to pull out of my checking account to use for my food budget cash envelope. Make sense? After I have pulled out my allocated amount in cash, I am going to place it in an envelope and only use that envelope for food expenses until next payday.
In a way, we are using the cash envelope method, but we are only using it for one category of our budget. Your problem area might be your entertainment fund. If you are constantly going over budget on leisure activities, make sure to set a limit and only use the cash you have in your envelope. Once the cash runs out, that's it! There is no cheating by using your debit card or telling yourself you will do better next month. This is it. This is your chance to really get a handle on your money.
The purpose of using the cash envelope method on only the problem area of our budget is to show you that it is possible to control unnecessary spending. Tracking your spending is great, but learning to live on what you have is also important. The cash envelope method allows you to see how much you have left to spend quickly and does a wonderful job of keeping you accountable. When I used this system, I can’t even count how many times I went to the grocery store and wanted to buy soda (it’s totally my weakness & it’s horrible). I took one look at my envelope and thought to myself, “I can buy soda with the last of my $25 in my envelope, or use it to buy something more important things like milk, eggs or this week’s meal plans.”
Keep in mind; you don't have to go out and buy fancy envelopes or organizational tools to complete the challenge. I have created a FREE envelope template that you can printout and make your own envelope for the challenge. Simply print it out, fold along the dotted lines, and tape it together. Make sure to see this tutorial for more instructions and to download the FREE envelope template.
Studies have shown that you are 45% more likely to complete a goal if you have accountability for your actions. This might mean sharing your plan or goal with a friend, doing regular check-ups with a partner, or simply discussing your plan with someone else.
So, for the challenge, I will be taking a picture of my Spending Tracker and sharing it with you in The Budget Mom Family Facebook Group. I will also be sharing my progress on my cash envelope. I challenge everyone who participates in the challenge to share your journey as well. Take a picture of your Spending Tracker and share it with the group. What did you spend your money on? Is there something that you regret buying? Did you spend $0 for the whole day? If so, let's celebrate a no-spend day!
If you are uncomfortable sharing your Spending Tracker, that's OK. Just talking about your spending struggles as you complete the challenge will be a big help.
By the end of the challenge, you should be able to accomplish the following:
- Have a clear understanding of where your money is going
- Identify problem areas in your budget
- Catch expenses you forgot about
- Cut back on unnecessary spending by utilizing the cash envelope method
- Be able to make changes to your existing budget based on the new knowledge that you have or create your very first budget using realistic limits
STEPS TO COMPLETE THE CHALLENGE
Even though we will be completing this challenge for the month of April, it can be done during any month. Here are the steps on how to complete the challenge:
STEP #1: Download the Spending Tracker or decide on a tool that you would like to use throughout the challenge.
STEP #2: Identify the area in your budget where you overspend the most. This is the category that you will use for the cash envelope method of the challenge.
STEP #3: Download the free envelope template and make your envelope.
STEP #5: Introduce yourself to the group and let us know if you are participating in the challenge. Share with us what you hope to accomplish after the challenge is over.
STEP# 6: Starting on April 1st, start tracking where every dollar is spent. Make sure you only use cash from your envelope for the category you chose for Step #2. That means, if you budget by paycheck like me, pull out your allocated amount the day you get paid, so you have cash available.
If you have any questions throughout the challenge, you can always contact me via the TBM Family Facebook Group.
I look forward to seeing your pictures and reading about your spending journey. Let the challenge begin!