I’m going to let you in on a secret technique that’s helped me control my spending and save 70% of my income. And the best part: I didn’t have to create or abide by a budget that would restrict what I wanted to do with my money.
Sounds amazing, doesn’t it?
Well, not only does this secret technique help you achieve your financial goals, it’s also a really effective way to both set what that goal is and track your progress toward it, especially if you’re looking to do something like early retirement.
So doing this is like killing 3 birds with 1 stone!
Furthermore, this is a super simple thing that anyone can do. And in my opinion, everyone should be doing this.
Alright, enough hype, just what is this amazing secret? Let’s find out!
To watch a video on this topic, check this out:
Have the Right Mindset: Happiness
First, before we get into what the actual technique is, I want to talk about the mindset that you’ll need to make it effective, and that’s taking a view toward making long-term happiness your financial goal.
Long-term happiness means prioritizing what you really want to achieve with your dreams of how you want to live your life. One great example of this is being able to “retire early” so you can spend more time with your kids as they grow up instead of seeing them only a few minutes a day since you have to work full-time.
By keeping this long-term goal in mind, that means you’ll naturally prefer saving and investing money to help you achieve your goals faster rather than wasting it on things that only temporarily boost your mood. Of course, it’s not always easy to keep your goals in mind when you feel like you need to spend some money to make up for the stress of your job or the difficulties of everyday life.
Budgeting as a Solution?
That’s why budgeting has become a popular way for people to control their spending. By creating a budget ahead of time, you are effectively calculating a path toward saving enough money to achieve your goals. If you manage to stick to it strictly enough, you should eventually succeed.
However, I’ve never liked creating budgets, which involves planning strict spending limits in certain categories. I feel like it it’s hard to predict the changes of life that will require you to make exceptions or recalculate the budget, which takes more time and effort. Flexibility is something that the budgeting method lacks.
And carefully measuring against your spend limits for every category each month feels like limiting, like you’ve put yourself in a prison. Now, I recognize that there are times when budgets are very effective. If you’re in a terrible situation with loads of credit card debt, you’ll need to take drastic actions to dig yourself out of the hole. So for short periods, budgeting can be a very good idea.
However, I don’t see it as a great long term solution. That’s where the secret technique comes in, so let’s go ahead and talk about what it is.
The Secret: Track Your Spending
The secret is this: tracking your spending. Yes, it’s that simple. Now before you get mad and break your screen, let me explain.
The type of spend tracking I’m talking about isn’t just checking how much money you spent each month after the fact by looking at credit card statements or aggregators like Mint or Personal Capital. Those are things you should still do, but they don’t help with controlling your daily spending.
When I say track your spending, I mean every single day, write down exactly how much money you spent and on what in a spreadsheet. For every “shopping instance”, there should be at least 1 entry. This is something I’ve been doing for the last several years, and it’s helped me immensely in a number of ways.
First, in order to set your financial goal targets, you need to understand how much money you are spending. If you actually track this manually every day, that’s the most accurate view into exactly how much you are spending. Automated tools like Mint or Personal Capital can help and are much easier, but they don’t automatically track cash transactions (if you have any), and they may not accurately categorize things into buckets that work well for you.
Second, tracking your spending goes hand in hand with tracking your savings if you simply add your income to the spreadsheet as well, which for most people is very easy if you work a job that gives you a paycheck. Then, it’s as simple as creating a few columns with basic arithmetic to figure out how much you are saving versus spending each month, and your savings rate. This is key to determining if you are actually on track with progress toward your goals.
But wait, you ask: how does tracking your expenses manually like this help control spending? Well, thank you for asking!
As I mentioned before, this benefit of tracking your spending manually is most effective if you view long-term happiness as your goal. By manually recording how much you are spending, it will keep reminding you of your immediate purchases and spending habits, letting you see exactly how every purchase is impacting how soon you can achieve your goal.
This is powerful psychology, and for me, I’ve found it to be a great deterrent to overspending. Essentially, constantly reminding yourself to think about each purchase you make on a daily basis will help you realize whether its something that brings long-term happiness, and thus a worthwhile investment, or just fleeting joy, and thus no different than burning your money and throwing it away.
Over time, tracking your spending will instill in you this mindset of focusing on long-term goals and happiness. That means you won’t need to spend a lot of time and energy thinking about these things anymore, but you’ll naturally lean towards making smarter spending choices that are consistent with your goals. Your entire lifestyle should end up changing, and for the better.
So there it is… the simple secret technique to controlling your spending and achieving your financial goals without budgeting! It may take some work at first, but give it a try and let me know how it goes!
I’ve been doing this for a while, so if want to see another post with some tips on how to set up a spreadsheet so you only need a few minutes a day to track your spending, please let me know in the comments.