Getting a grasp of your spending habits

I was someone who hated looking at my bank account back in the day. Money was a subject filled with anxiety and fear, because I hadn’t really taken the time to educate myself. I had no idea how much my spending habits affected not just my bank account, but also my relationship with money. I was trapped in this anxious cycle of getting a paycheque, spending it randomly on both necessities and fun things, never knowing how much I have left.

That all changed when I started to actually learn the fundamentals of financial literacy. It took me a long time, multiple books and different phases of my own life to get me where I am today. Today I have full control over my personal finances, know exactly where my money is going, how much I want to spend on what, and the amount I have free to spend as I want, or not. And it all started with exactly what this article’s title states.

Getting a grasp of my own spending habits.

You shouldn’t do it the lazy way, even if it’s faster

When I first started looking into this, I did so after reading Ramit Sethi’s book that I mention in my previous article on What it means to have financial security, and how to get it. If you haven’t read that one yet, do so to get a better grasp of what it actually means to have financial security.

In that book, Ramit talks about the importance of doing the due diligence, and why you should do it by hand. It has a psychological impact that you just don’t get by using an automated digital tool that does the work for you. It’s the very act of putting in every single expense you have each month, into a spreadsheet, that firmly imprints in your head the importance of knowing what you spend your money on.

And that’s what we’re after, not just the actual list of expenses. That’s the easy part. What you actually want, is a change in your mindset around money and your spending habits. Changing that from this uncontrollable spending habit that results in the fear of even checking your bank account balance, to one where you are calm and know exactly what you spend your money on.

Trust me on this. Doing it by hand is the most important part to this. With that said, let’s actually get into it.

It starts with a spreadsheet

You are going to love spreadsheets. Well, maybe not. But I think you can learn to love them. Because they can really help you get a great overview of the numbers in your financials. And it’s not that complicated, at all actually.

First of all, you are going to log into your bank account, and look at your expenses list. Go ahead and filter the expenses from todays date, back to at least 2 months back. I would prefer if you chose 3 months. The reason is that you want as much historic data as possible on your spending habits. That’s why just doing 1 month is not enough, as spending habits can vary from month to month, not just in the habits themselves, but in the amounts and so on.

So, once you’ve got your 3 months of expenses, you can make it easier for yourself and export them to a format you can have locally on your computer. Be it Excel, XML or even just a screenshot. As long as you can look at every single expense over the last 3 months, you’re good.

Next, you’re going to create your very own spreadsheet. This is going to be your single source of truth for your spending habits, and eventually your budgets as well, but that’s a different article. I took the liberty of creating a super simple template that you can use to set up your own spreadsheet from. You can find a link to it in Google Drive at the bottom of the article.

Great, now that you have both your expenses, and your spreadsheet, it’s time to set up the structure.

Creating a structure for your expenses

First of all, we need to distinguish our expenses from one another. This is the foundation for being able to budget and track our expenses based on a budget. Look out for my next article that will come out in a week on how to set up budgetting in your spreadsheet and getting a report on your spending.

The first distinguishing factor is the expense “type”. You can choose to create your own here, but I have used the same as Ramit, which is “Guilt free spending” and “Fixed costs”. These base themselves on the idea that money, and spending money, should not be about being 100% strict and that every single expense should have a productive purpose. Spending money should be easy and not something filled with anxiety. That’s where “Guilt free spending” comes in.

These are the expenses that you can spend on without feeling any guilt to yourself at all. Examples of this could be movie tickets, a new pair of shoes, an extra nice cup of coffee or a day at the spa. I think you get it. It’s about making spending money something enjoyable while still feeling like you are in control.

Next, you have your “Fixed costs”. These are of course the costs that you have to take care of each month. It’s your rent, the maintenance costs of your house or apartment like electricity, water, heat. It’s also your subscriptions, like gym subscription, Spotify, Internet, phone etc.

These are the two main distinguishing factors for your expenses. If you want a super simple way of tracking your expenses and budgetting, using these two expense types is good enough, at least as a start.

But for those of you who want more granular details on your spending, like what you spend on eating dinner at home vs dinner out, or what you spend on coffee vs travel costs to and from work, you can add a second level within the “type” of expense and call it something like “category”. These can be unique for each type, or exist for both. It’s just for you to add another layer to distinguish and better understand how you spend your money.

In the template I link at the bottom of the article, there is a “Comment” column for each expense where you can enter the category in free text. Otherwise you can create a new column with a Dropdown that consists of the different categories you want.

But that’s pretty much it for our structure. Now it’s just a matter of doing the work.

Putting it all together

Now that you have both your expense types, and possibly some categories, it’s just a matter of entering your expenses from your export from your bank account. This is monotonous and boring. This took me a good while, I think close to a whole afternoon with the structure and entering all my expenses properly. But in the end, this is more than worth the invested time, because now you have an index of all your spending for at least the past 3 months. This is what will give you the ability to understand your spending habits, and allow you to budget your money. And in the end, know exactly how much you can put away each month and what you have left over to spend guilt free on whatever you want.

If you’ve gotten this far, and have structured all your expenses in a spreadsheet of your own, you have done more than the majority of people will ever do for their personal finances. Kudos to you. Next week I’ll share an article on how to put together reports on your spending as well as how to set up your budgets in the spreadsheet and begin tracking your budgetting over time.

I hope this was helpful to you, as this was at the time really helpful for me while getting a grasp of my own finances. Below, you will find a link to the simple template I put together as an example of how you can structure your list in a spreadsheet.

Money tracking spreadsheet