The first step to reaching financial independence is knowing how much you spend. You need to know about your personal finances and focus your spending on efficiency and value for money.
If you asked me 5-10 years ago how much I spent a year, I would not have been able to give you an answer. Even when I applied for a home loan I didn’t really know what I spent. I had a rough idea, I knew how much I could afford because of how much rent I paid and how much money I was saving but I didn’t track my expenses. That has changed now and it is amazing the difference it makes.
I like to know how much I spend every year. Some people calculate their monthly expenses but for me that is just too variable. One month you may have an electricity bill, the next there may be nothing due and then you may be hit with house insurance, car registration and insurance, and council rates all in the same month.
Annual expenses tend to remain fairly constant.
So how do you track your expenses?
There are a lot of different apps and programs available, the government even produced one called TrackMySpend. Most of them require you to enter the data in whenever you spend you hard earned cash.
I don’t use an app or money program. I pay for practically everything with my credit card. This is paid off in full before every due date. If you can’t pay off your credit card in full every month, DON’T use it anymore.
Credit card debt is the arch nemesis of financial freedom.
My bank gives me a nice breakdown on my online account of exactly what I have spent my money on each month, or each financial year. The bank automatically breaks it down into categories (which can be altered), so I can see exactly where it goes.
But sometimes you need to use cash. In these cases I put these expenses onto a spreadsheet I made a few years ago (before my credit card had it’s fancy program and I had to do it manually). At the end of each financial year I check my savings account for the
times I withdrew cash. I will know where most of this went, but there will be an amount left over which I put under miscellaneous. For everything else, it is all nicely set out on my credit card account.
Using your credit card like this has 3 distinct advantages.
1) It helps you track your expenses.
2) It gives you reward points (which I generally use to get cash back).
3) It allows you to delay payments so you can keep your money working for you longer (either in an offset mortgage account or other savings/investment)
So if you don’t know what you spend, start tracking where your money goes.
The results will surprise you.
If you asked me 5-10 years ago how much I spent a year, I would not have been able to give you an answer. Even when I applied for a home loan I didn’t really know what I spent. I had a rough idea, I knew how much I could afford because of how much rent I paid and how much money I was saving but I didn’t track my expenses. That has changed now and it is amazing the difference it makes.
I like to know how much I spend every year. Some people calculate their monthly expenses but for me that is just too variable. One month you may have an electricity bill, the next there may be nothing due and then you may be hit with house insurance, car registration and insurance, and council rates all in the same month.
Annual expenses tend to remain fairly constant.
So how do you track your expenses?
There are a lot of different apps and programs available, the government even produced one called TrackMySpend. Most of them require you to enter the data in whenever you spend you hard earned cash.
I don’t use an app or money program. I pay for practically everything with my credit card. This is paid off in full before every due date. If you can’t pay off your credit card in full every month, DON’T use it anymore.
Credit card debt is the arch nemesis of financial freedom.
My bank gives me a nice breakdown on my online account of exactly what I have spent my money on each month, or each financial year. The bank automatically breaks it down into categories (which can be altered), so I can see exactly where it goes.
But sometimes you need to use cash. In these cases I put these expenses onto a spreadsheet I made a few years ago (before my credit card had it’s fancy program and I had to do it manually). At the end of each financial year I check my savings account for the
times I withdrew cash. I will know where most of this went, but there will be an amount left over which I put under miscellaneous. For everything else, it is all nicely set out on my credit card account.
Using your credit card like this has 3 distinct advantages.
1) It helps you track your expenses.
2) It gives you reward points (which I generally use to get cash back).
3) It allows you to delay payments so you can keep your money working for you longer (either in an offset mortgage account or other savings/investment)
So if you don’t know what you spend, start tracking where your money goes.
The results will surprise you.