For many years I kept track of my personal spending, but saw little point in it and gave up. For the last three months I’ve been tracking again, and once a month I draw up a budget. I’m happy with the result. I started again because the business began making less profit, and I’m used to topping up my salary with money taken out of the business’s working capital. I know it’s a bad habit, and I want to fix it. I graduated from the “narkhoz”, the economics university, and as a student I read, God forgive me, Kiyosaki and other financial advisers, but I don’t consider myself an expert. I make plenty of stupid, common mistakes, but I want to get to grips with it. Here are the problems I see in myself and in people I know, and how budgeting my spending helps solve them.
Feeling there isn’t enough money for the basics: food, housing and clothes. Once you start tracking your spending, that feeling may turn out right or wrong. Maybe you’re eating out the money you should have put aside for rent. Knowing the real picture makes it easier to set priorities, even if there really isn’t enough for everything.
I keep thinking I can’t afford the clothing brands I want, yet similar sums go every month on cafés, software and all sorts of educational subscriptions.
The money I earned went who knows where. Write down all your expenses for the month, and you understand what the money went on. You can judge which expenses were necessary and which you could have skipped or somehow avoided.
When I started tracking expenses again, I found out that I spend surprisingly much on online services and that I’m constantly ill. I cut the services by a third in the very first month. My health needs work :(
Personal spending is mixed up with company expenses, and I don’t know the total. I discovered that I regularly spend more than I earn, but with the settlements between me and the business, several cards and credit limits, it doesn’t show. When I went only by the credit card statement, the company’s expenses got mixed up with mine. I had to work out in my head how much to subtract. It seems easy, but in practice even 5–7 transactions on the company’s account seriously distort the picture.
I know at least one person who spends a company’s money without owning it, and who doesn’t know their real spending either.
I spend money on impulse buys. Tracking expenses, and then budgeting them, helps me hold back from impulse spending.
Last Black Friday I said “no” to a discounted subscription to the best porn in the world, from director Erika Lust! 🤪
A spending budget helps the young cortex overcome the momentary urges of the lizard brain, which knows no yesterday and no tomorrow.
I can’t say it’s a sure-fire recipe: in December I bought 7,000 hryvnias’ worth of clothes with no budget for it. The lizard won.
No savings for big, irregular purchases. Without tracking expenses you can’t plan them. You don’t control what you don’t measure. Can you keep an eye on your weight without scales at home?
If you don’t plan the big expenses you need to save up for over several months, like a seasonal wardrobe or a new computer, then when the time comes you have to borrow, dip into your reserves or take out a loan.
A loan, by the way, costs money ⟶ so not planning costs money.
Make a budget for the month and work out how much you can put aside for big purchases. For example, if you want to buy an 18,000 laptop in six months, you need to put aside six thousand a month. Can’t manage that much? Then you think about how to fix the situation.
Guilt about non-essential everyday spending. I mean the spending you could have avoided: a taxi instead of public transport, a book for yourself or something cute for the home.
Put pleasant everyday spending into the budget, and you live calmly and spend as much as you like, because you’ve allowed for that standard of living. The buzz of getting nice things isn’t spoiled by worrying that it was money you shouldn’t have spent. When you’ve tracked your spending for a few months, you start to understand what that level of comfort costs and whether you can afford it.
If you’re saving for a laptop and went to a café one time too many, you understand that you’ve pushed back the day you’ll buy the laptop. Guilt over an extra purchase turns into a conscious choice between a small good thing now and a big nice thing later. It’s not a given that the big thing later is better. What matters is that instead of a vague sense of guilt, you have a conscious choice.
No plan for saving up for an apartment or retirement. Very large sums, like buying an apartment, health insurance or retiring, need planning years ahead. Simple expense tracking isn’t enough here, but it’s the first and necessary step toward building personal capital and managing it.
Thanks to Dasha for editing this note and to Sonya for the real-life examples.