Importance of Tracking Expenses

If I had to pick the one habit I had that helped me stay out of debt, and maintain control over my finances during my college years, and throughout my working life so far, it would be tracking my expenses.

To give you an idea of how this has helped me, check my net-worth graph from September 2014 to June 2017. During this time, I paid off my house, and maximized both retirement accounts.

Net worth over the years

Understanding my spending patterns also helped me cut down on food waste (among other things). Here is a breakdown of spending on food (groceries and eating out) over the years. Compared to the year 2011, where spent $4938.77 on food, we only spent $2688.83 in 2016! We saved over $2000 on food without compromising on quality of life! To me, this is the very definition of minimalism. Reducing waste, being intentional about spending and maximizing the quality of life in the process.

My own version of the spreadsheet is a little cumbersome, and it is not suited for everyone. Therefore I decided to create a very basic spreadsheet which gives you a platform to begin the process of tracking your expenses. Once you get into the habit, you can customize this as you see fit.You could also use this to create your own spreadsheet in excel, so feel free to make a copy of it and change it to your heart's content. The idea here to be able to look for patterns, and make changes in your life that are advantageous to your goals.

You can view the spreadsheet HERE.

I understand this might be a difficult task for some, but personally it was worth the effort to be meticulous about tracking spending. I also created a video tutorial on how to use it.



If you are a college student, I especially recommend this, because I started doing this in college, and it has helped me immensely when I entered the job market.

Why not use Mint?

This is a reasonable question, I suppose. I personally do not want to give all my information to Mint. I am not comfortable with it.

Filtering data, and getting the information I need is very simple provided I enter the data correctly. If you are someone looking to skip the data entry part, then you have to look elsewhere. This spreadsheet won't help you.

I also found Mint lacking when a single transaction combines multiple categories. As I have shown in the example, a single transaction might contain groceries, computer peripherals, household items etc. Mint does not analyse each item within the purchase (at the time, it might be different now), and it would only show me the overall expense. This was not helpful for me, so I decided to create my own solution.

Conclusion

I strongly suggest you try this for a week. If you feel its too much work, then you could look for a more hands off solution. You are no worse off than before.

Feel free to ask me any questions you might have.

Month In Review - May 2017

We started the month of May with the intention of doing better than we did in April which was a fantastic month with $790 expenses. We knew it was going to be difficult to live within $790 especially because we were going to visit family in a different state. 

With the baseline of monthly expenditure being $1000, we decided to contribute the difference towards a vacation fund. So far in two months, we contributed $518.64 towards this fund. 

Our expenditure for the month of May is $690.80

We managed to spend $99.77 than the previous month. We consider this a huge win for us because we were able to reduce waste very aggressively without compromising on fun or quality of life.

Expenses for the month of May 2017

For the month of June, I intend to reduce eating out, because we are planning for some fancy dining next month.

Spending in 2017 thus far -

Month in Review - April 2017

We began this month with the goal of spending less $1000 for all expenses. We are fortunate enough to have a paid off house, therefore we felt that this was something we could accomplish. I didn't have any big expenses that I could foresee for April. I paid off the tax dues last month, so the only spending categories we had to care about this month were regular expenses. 

Keeping track of expenses, and consciously avoiding spending mistakes allowed us to stay under budget. It wasn’t as difficult as I thought it would be, it just required some vigilance on our part to ensure that easy mistakes wouldn't be made. 

Summary of spending in April

Spending per category in April 2017

For the month of May, I intend to maintain the same budget, and spend less than $1000. I need to do a better job at managing groceries and eating out expenses. We did a great job until the 28th of this month. On the 28th, we went out to eat at a sit down restaurant, and that cost us $32 (I am generous when it comes to leaving tips). We definitely enjoyed the experience, but felt that getting take out would have been more fun, and would cost us less. 

Spending in 2017 thus far

Spending in 2017

The huge spike in spending for January 2017 is because we paid off our mortgage, and March was an expensive month because taxes were due.

Paid Off Our Mortgage

We paid a total of $3,572.87 in interest in 2016. I began thinking about it over the course of the last few weeks. I did not see much of a reason to keep paying interest to the bank when I have the funds to pay off the loan in full.

Between my interest earning accounts, I earned a total of $2,738.51. Therefore having the mortgage cost me $1,148.17, that's $3.17 per day. between Monday, February 1, 2016 and Saturday, January 28, 2017.

It got to the point where having the money in the bank isn't increasing my net worth.

Interest paid in 2016

There have been several good arguments made in favor of not paying extra towards the mortgage and investing the money in the stock market in mutual funds, like S&P 500.

However, I realized this particular argument does not fully apply to my situation. I have enough money to pay off the mortgage in my CD and Savings account. So my choice comes down to investing the money as a whole in the stock market or liquidating the CD, and combining it with funds in my savings account, to pay off the mortgage.

Now, there will be folks out there who believe that investing the money as a lump sum in the stock market in an S&P 500 fund is the way to go. They are not wrong. I want to make that very clear. I have a feeling that doing so will put me ahead in the long run.

I just don't have the courage to do so.

I would rather pay off the mortgage and invest what I would have paid towards it in the stock market every month.

With this strategy in mind, I called the bank on Monday, January 23, 2017, to close my 60 month CD and have them deposit close to $100,000 in my online savings account. They closed the CD without any issues, and the money was deposited in my savings account on the same day. I received an email confirmation from the bank about the account closure.

CD account summary

I had to pay $1081.77 in early withdrawal penalty, so my initial balance of $100.905.97 was reduced to $99,824.20, which was deposited into my savings account.

Savings account summary

I initiated a transfer of $126,000 from my savings account into my checking account at 7:34PM on the same day. The money was deposited into my checking account on Friday, January 27, 2017.

I called the mortgage company first thing in the morning, and got the necessary details about paying off the loan. I was told that I need to pay off the balance through a wire transfer. I was given all the necessary details needed to include on the form, such as the ABA number, destination account number etc.

I went to my local bank and initiated the wire transfer at 9:24 AM. They received a confirmation at 9:31 AM. The process was very simple, and it cost me $12.

Checking account activity

At 9:45 PM on the same day, my account status on mortgage account was updated.

Mortgage paid off!

I was told that I am going to receive my escrow balance check, and satisfaction of mortgage within 30 days. The mortgage company is going to contact the county clerk office to update them regarding this, so that I can receive my tax bill.

I will have to contact the homeowner's insurance company and have them remove the lender from my account and send me the bill for home insurance going forward.

My liquid net worth (including investments) has of course dropped significantly, but I am fine with that, considering I do not have mortgage payments anymore. I intend to put a savings plan in place, and hopefully save close 95% of my pay check, and I would imagine that it will grow over the course of the next few years.

My current net worth after the pay off

2016 - Financial Year in Review

2016 has been a wonderful year for finances. Our greatest blessing remains our good health, which is what enabled us to make great progress. I wish to thank the powers that be for all the gifts. As we get ready for 2017, I want to look back at last year and review finances. There is no particular format for this review. I went through my expenses spreadsheet and made some observations.

Total net worth

This is a sum total of all the liquid assets, investment assets minus all the debt, which is our mortgage loan. I choose not to include property as an asset...I don't have a reason for this.

Beginning of year balance (January 16, 2016) - $19,227.71

End of year balance - $80,704.86

Change - +319.73%

Liquid net worth

This includes a total of all the liquid accounts.

Beginning of year balance (January 16, 2016) - $138,639.33

End of year balance (December 16, 2016) - $161,365.71

Change - +16.39%

Investments

This includes 401k, Roth IRA and taxable investments.

Total invested in 2016 - $25,947.63

Total invested (December 16, 2016) - $40,817.69

Total investment net worth (December 16, 2016) - $44,864.63

Change - +9.91%

Debt

We are fortunate enough to be debt free except for our 15 year mortgage loan @ 3%, for our house which we purchased in December 2015.

January 16, 2016 - (-$134,097.00)

December 16, 2016 - (-$125,525.48)

Change - +6.39%

Total Expenses

I think there are several areas where there is some room for improvement.

2016 Total expenses - $32,298.31

2015 Total expenses - $57146.40

The reason for high expenses in 2015 is due to the 20% down payment for our home.

Change - (-43.48%)

Food 

2016 groceries and eating out - $2688.83

2015 groceries and eating out - $2692.17

Change - (-.12%)

We could have easily saved more, but some careless decisions led to getting so very close to the 2015 amount.

Computer related expenses

2016 computer expenditure - $2149.85

I built a new Skylake machine costing $1728.90...I don’t regret it, but I am going to take it easy with computer related expenses going forward.

2015 computer expenditure - $1591.95

Every year from 2012 onward, I’ve spent over $1500 per year on computer related expenses. I think 2017 is the year to break this trend.

Change - +35.04%

Video game purchases

2016 video game purchases - $179.50

Two copies of Battlefield 1, and one Uncharted 4 are the major culprits.

2015 video game purchases - $200.16

Two copies of Battlefield Hardline, Legend of Zelda are the major culprits.

I intend to keep video game purchases under $100 in 2017.

Change - (-10.32%)

Unplanned big expenses

Expenditure for 2016 - $3361.27

A $1500 car repair, a $1100 trip to New York City for a family wedding and a root canal, all contributed to this. I am hoping 2017 will not have any surprises like this.

Expenditure for 2015 - $407.60

Change - +725.13%

Yearly Net Worth for 2016

I have been tracking my net worth since September 2014. I calculate it after the 15th of each month when CD and Savings interest deposit gets credited.

Here is the overall net worth graph -

Our net worth from September 2014 to December 2016

The sharp drop in net worth happened when we put a down payment on our house, and added the mortgage loan to the net worth calculation.

Here is the 2016 net worth graph -

Our net worth through 2016

Here are the raw numbers for the year 2016 -

Saturday, January 16, 2016 - $19,227.71
Tuesday, February 16, 2016 - $23,754.88
Wednesday, March 16, 2016 - $35,170.08
Sunday, April 17, 2016 - $39,981.02
Wednesday, May 18, 2016 - $45,126.21
Thursday, June 16, 2016 - $50,424.84
Saturday, July 16, 2016 - $56,655.58
Tuesday, August 16, 2016 - $61,539.37
Friday, September 16, 2016 - $65,852.22
Thursday, November 17, 2016 - $75,676.98
Friday, December 16, 2016 - $80,704.86

We managed to increase our net worth from $19,227.71 to $80,704.86. This was done through diligent saving, tracking our expenses very closely, and .

So my goal for 2017 is to automate savings, and allocate a percentage of our income towards experiences, be it overseas travel or a road trip. I feel like we should now focus on building a life, and let the net worth take care of itself through automated savings.

Our Budget

We live in a college town in the midwest. I work in IT and my wife works in a grocery store. 

Take home pay - $3563.57 (This is after contributing 20% of my income to the company’s 401k plan)

My wife makes about $1200 per month, but we don’t factor it into our budget. I am not sure if that is a good thing or not. I am open to suggestions. 

Here is our monthly budget based on my income only - 

Our current budget