Part II: Does Your Spending Support Your Values?
Part I of this series focused on uncovering what you truly value in life. Without knowing what you most value, it’s difficult to find the places in your spending habits that won’t hurt to trim. Now for Part II…finding out what you actually spend.
For many, the word “budget” makes them run screaming for cover. But what if instead of asking you to budget, I ask you to simply track what you spend each month? Tracking is the foundation for financial success.
Image Credit: ©Ree Klein, All Rights Reserved
The book Your Money or Your Life by Joe Dominguez and Vicki Robin had a profound effect on me (affiliate link). They suggest that you track what you spend, figure out how much of your life energy it took pay for that item/service and then make some decisions about whether or not you got enough value to continue spending that much.
While their system is a bit complicated and requires a lot of time and thought to go through the process, I still hold it is well worth checking out. However, many of us don’t have the patience to go into that level of detail. And, for couples, if one of the team isn’t on board, you’ll never get any traction making progress. So, it’s best to start simple…
Get a True Picture of What You Spend
Even if budging isn’t a revolting idea, you need a true picture of your spending before you can craft a meaningful budget. But budgeting isn’t for everyone. Either way, tracking what you spend is key to success. I’ve created a simple two-page template that you can customize to help with this important step.
1. Print the Worksheet
The template is free so please print or save a copy and share it with anyone who might benefit by using it. There’s an Excel version (.xls) and a PDF version; print whichever is best for you.
2. Customize the Worksheet
The template attempts to cover all bases. If, for example, you don’t have any children, remove all the line items that start with “Kids:” Similarly, if you have some unique expenses, there are blank lines at the end of the worksheet where you can add them. It’s handy to add the short descriptor at the beginning so you can keep expenses grouped together by category. I’ve used descriptors like Auto, Home, Kids, Pers (for personal), Utility, etc.
A word about the future capital expenses (FCE) line items. I have an entire post devoted to the discussion of future capital expenses, but for now, these are the expenses that don’t come every month. These are usually the expenses that turn into “emergencies” because we rarely save for them over time despite the fact that we know one day we’ll be faced with paying for it. ONCE I STARTED SAVING MONTHLY TO COVER FUTURE CAPITAL EXPENSES, MY LIFE CHANGED.
3. Track Every Penny You Spend
Commit to track every penny you spend. It’s handy to carry a small pad of paper and pen so that you can track cash expenditures as they happen. Trust me, you’ll forget what you spent the money on if you don’t get a receipt or write it down. Make sure you make note of the category especially when you spend cash and don’t get a receipt.
4. Summarize Your Spending
Over the years I have done this many different ways. You need to find a method that suits you and if you’re like me you’ll change it up once in a while. I’ve used Excel but now I track exclusively in Quicken (affiliate link). Yes, I STILL TRACK MY EXPENSES. It’s a habit that keeps me from slipping back into destructive behaviors and it works.
You can do this daily, weekly or at the end of the month. The key is to do it each and every month! Total up all of the spending in each category and record it on the worksheet, in Quicken or some other system that works for you. Just make sure that:
- You track every penny.
- All expenditures have a category.
- You’re religious about tracking.
Don’t forget to complete the totals at the bottom of the worksheet. This will tell you how well you did against your income figure. Here are some thoughts on what you might find:
- If you show a negative figure, you are likely living beyond your means. Don’t get depressed. Instead, congratulate yourself for taking steps to secure a better future.
- If you show a positive figure, either apply the extra money to debt reduction or if you’re debt free, start saving for future capital expenses or increase retirement savings.
- If you net out to zero in the “Amount Over/Under Income” field, AND you are saving at least 10% of your income. CONGRATULATIONS! Give yourself a pat on the back, you’re headed for success!
Test the Shock Value
Once you’ve completed the worksheet at month end, look at the total spent in each category and assign a Shock Value of high, medium or low.
- High means you spent considerably more than you believed you spent. This could be an “ah ha!” moment.
- Medium means it’s about what you thought you were spending all along.
- Low means you did better than you thought. Yeah!
I’m still shocked that I spend so much in my grocery and dining/entertainment categories. There are people out there who are wizards at grocery shopping, but I’m not one of them. Being aware of that fact does help me keep it “front of mind” when I shop and order at a restaurant.
Do a Values Comparison
Go back to the values list you created in Part I of this series. Take a few minutes to evaluate whether the high and medium shock value areas support the values you listed. If they do, maybe spending that much isn’t out of line; however, if you find that you are spending on things that don’t support what you value, these could be the easiest behaviors to change.
Make Some Decisions
Now it’s time to make some decisions. For each line item on the worksheet, put a +, – or write no change in the “Goal” column. Here’s what each one means in relationship to supporting your values:
- + means that you want to spend more in this area because it supports your values.
- – means that you are committing to cutting back here.
- No change means that what you are currently doing suits your values.
This isn’t a one-time event. To be successful, you must manage your finances like clockwork every month. Tracking what you spend is one excellent way to have visibility into what you are actually doing with your money. I’ve been working on this for over 20 years; I still track and evaluate my spending to ensure I don’t derail off my values.
This can be a scary task if you’ve never done it before. Once you commit to opening this door, you will have to be prepared to face what you find. I did that when I was in my early 30s and I’m so glad I did. My life has done nothing but improve since and I’m certain it will be the same for you.
What Do You Think?
What did you learn about your spending and values? There are many techniques for tracking and budgeting, what tips can you share from your own experiences? Please share your thoughts in the comments section below.
Reduce Financial Emergencies With One Simple Strategy (this post covers Future Capital Expenses)