12

holding yourself accountable

Imagine that you are on the board of directors for a large corporation. You fly into town for a quarterly board meeting. The company’s CEO opens the meeting with a PowerPoint presentation. He reminds the board of the organization’s strategy and vision for the future, then gets specific about the quarterly goals—many of them financial in nature—that the company has worked toward.

He wraps up his presentation, but he left something out or you missed it. He didn’t talk about how the company performed financially and whether they met the goals. You speak up about it. “Thanks for the presentation. One thing I’m still curious about is how the company actually performed. Can you share some financial figures that help us see our profitability over the last quarter?”

The CEO responds, “I keep track of the organization’s budget and spending in my head. I can certainly jot down my sense of where things are, but I don’t have anything to print off and show you that firmly describes how we’ve been doing financially.”

If a CEO did this in real life, he’d be fired immediately. The stock market requires earnings or profit reports four times each year from publicly traded companies. We expect companies to track their expenses and their income, and do so accurately. Yet we tolerate much less from ourselves.

The Need

Last year I got Marco a GPS for Christmas. Around the same time, I upgraded my smartphone to one that has a built-in GPS app. We’ve become GPS junkies in just a few months. I plug in my destination’s address, hit Navigate, and am coached from point A to point B.

Before I had a GPS I used maps. I often printed out maps from online and would even print out step-by-step driving directions. Those tools charted my course. They were powerless, though, to keep me on track once I started. The value of a GPS over a map or even written directions is that the GPS identifies my real-time location and lays it against the course I’m supposed to be taking. If they are misaligned, which they sometimes are (I often get mixed up when I drive), then it reroutes me so I get back on track toward my destination.

Why Track Spending?

Your spending plan and debt snowball plan are a road map and driving directions that take you to a new financial destiny. Expense tracking is your GPS, the tool that keeps you on course while you navigate the route.

Where physical health is concerned, some physicians recommend that patients keep a food log. We’ve heard that we are what we eat, and food is integrally tied to our body’s overall well-being, so that isn’t surprising. Dr. Michael Dansinger, a weight-loss and nutrition advisor on The Biggest Loser, has gone so far as to require every patient to keep a thorough diary of what they eat. He has seen that those who take the task seriously achieve far greater results than those patients who don’t. He says, “In my view recording food intake is practically a prerequisite to success.”[89]

What Dr. Dansinger has observed related to food logs and improved physical well-being, I’ve seen with expense tracking and financial health. If you participate in this discipline of tracking your spending, then your chances of long-term financial success are greater than those who refuse. There are a lot of reasons why I believe this is true.

You’ll spend less money

The simple fact that you have to account for everything you spend will make you think twice before you make a purchase. Ask me how I know? I keep track of where my money goes, so I have an increased awareness about my spending. That awareness helps me avoid impulses and fosters overall spending restraint. Sometimes it sounds like this in my mind: Do I really want Marco to see that I’ve gone out to lunch three times this week? No, I don’t think so. I’ll skip it.

Helps you correct problems

Like the GPS that tells you when you get off course, reviewing your actual expenses compared with your spending plan is what keeps you on course. Without checking your progress against your goals, how will you know when problems come up?

For Marco and me, one area of struggle was eating out. We consistently overspent on our eating-out budget. Each month we’d see it when we’d examine our spending and have a conversation about how to curb that habit. Eventually, when it seemed like nothing was working, Marco suggested a radical solution. That’s when we started our thirty-day no-eating-out challenge. We went for an entire thirty days without eating out at all. We didn’t have one lunch out. No dinner. No coffee on the way to work. Nothing.

In those thirty days we developed new habits that corrected our harmful spending behavior. It’s been years since that thirty-day break from restaurants, and we’ve been able to enjoy dining out in moderation ever since.

Had we not tracked our spending, we wouldn’t have realized the extent of our poor habit and wouldn’t have been able to correct it.

It’s a quick win

Changing your financial situation is first and foremost about attitude and motivation. Second, it is about budget worksheets and number crunching. Tracking your spending is an immediate tangible success for you.

It may take a few months before you pay off the first debt or before you’ve truly left old attitudes behind, but right now you can pat yourself on the back for doing something right—tracking expenses. It’s like putting a checkmark in the “I’ve done something financially responsible today” column, which feels really, really good. The positive energy you get from doing something smart with your money can sustain you until you achieve a larger goal.

Requires you to regularly pay attention to your financial situation

When your finances feel out of control, it’s really hard to want to look at them. And when you don’t look at them, they get more out of control. It can become a vicious cycle of overspending leading to avoidance, which creates guilt and leads to more overspending.

When you routinely pay attention to your money, you’ll be more apt to take action. It’s like the time my car was making an unusual noise every time I braked. I mentioned it to Marco, since he tends to our car repairs, and he didn’t seem overly concerned. It bothered me, though, because every time I drove somewhere, I heard this unsettling sound. I mentioned it a couple other times, but Marco still didn’t take action.

One day we ended up taking my car somewhere, versus our minivan, which is what he normally drives. Within minutes of heading out he said, “Wow, the brakes sound terrible. When we get home I need to look at them.” I’d told him that something was amiss with the brakes, but he wasn’t motivated to resolve the problem until he dealt with it himself.

That’s what happens when we pay attention to our finances. We see the situation, good and bad, for ourselves, and are compelled to take action.

Creates opportunities for celebration

You have a level of determination to operate within a spending plan and use a debt snowball plan to eliminate debt. On your road to success, you’ll do a thousand things right. You’ll pay cash for your son’s traveling baseball team and successfully reduce your grocery bill by 25 percent. Tracking your expenses lets you see each one of those milestones so you can celebrate it.

I remember how much confidence we gained each time we witnessed ourselves doing something positive with our money. After so many years of feeling financially stagnant, it was exhilarating to see us make better choices. Each of those little successes was like fuel in our tank that kept us moving in our journey.

Facilitates communication

Before we changed our attitudes toward money, Marco and I argued quite a bit about financial matters. Now we rarely argue about money. It isn’t that we always agree; we have plenty of disagreements about our financial priorities and our spending. What’s changed is the process and information we use to communicate about those disagreements.

Tracking our spending keeps us continually talking about our priorities and goals, which is a tension diffuser for us. We objectively look at our previous month’s spending and talk matter-of-factly about it. No more getting angry at one another because our finances feel tight. Instead we say, “The numbers don’t lie!”

If one of us overspends, the truth comes out in the numbers. Getting angry doesn’t change what has already happened. Instead, we can dissect what happened, learn from it, and work together to make next month better.

How to Track Spending

When you hear expense tracking, you might get images of receipts stacked to the ceiling, hours in front of the computer keying everything into a spreadsheet, and then ad nauseam number crunching. For all except the most Type A person among us (I’m raising my hand as one of those Type A folks), you’d rather pluck out your own eyelashes than do that. Blech.

So, sure, you can do what I did in 2006 and start an Excel worksheet that acts like a giant check register. You can create pivot tables, graphs, and charts that slice and dice your spending in every way known to man. But you don’t have to do that. You have a range of software options that will do a huge bulk of this work for you. Let me share some of my favorites with you.

Mint.com

Mint.com is the most hands-free solution I know of. You create a free account at Mint.com, then connect that account to all your other financial accounts. Mint.com automatically imports all the transactions that are processed through your linked accounts, whether checking, saving, credit or debit card transactions, then does its best to categorize the expenses for you. For instance, it is smart enough to know that Starbucks is a restaurant and should be classified as “eating out.” It likely won’t know that the mom-and-pop pizza place around the corner is a restaurant, since Mama D’s could be just about any type of business. That’s okay, because you can specify Mama D’s as a restaurant just once and it’ll always categorize it as such moving forward.

You can access a ton of very cool, useful reports that break down your spending. You can integrate components of your own spending plan, like maybe you don’t want to spend more than $600 per month on groceries. If you go over that limit, it’ll email or text you (or I say you set it up to text your spouse, especially if you are prone to impulse shopping!) so you’re aware. They have free mobile apps so you can access your spending information anytime.

Before I move on, let me talk about Mint.com’s security. Yes, I said that Mint.com can become a virtually hands-free way to see what and where you spend because it imports your purchasing data from bank accounts and credit cards that you’ve linked. To use Mint.com, you will give it read-only access to your account information by providing your online banking username and password. This makes some people really nervous, and rightfully so.

Personally, I trust Mint.com for three reasons. First, they use the same 128-bit encryption and physical security that banks use. Second, it is read-only access, so Mint.com does not have permission to initiate any transactions. All they can do is download the data of what has already been done. Third, Mint.com is owned by Intuit, who owns reputable software like TurboTax, QuickBooks, and Quicken.

If you’re uncomfortable with this solution, that’s fine. There are other options for you.

Quicken

Intuit’s Quicken has been around for almost two decades and is a very popular personal financial management software. Where Mint.com is an Internet-based software, Quicken is a PC- or Mac-based software that is installed on a computer.

Although it does not automatically import your transactions like Mint.com, you can import your transaction data in a number of supported file formats. In my experience, most banks offer Quicken-compatible file formats as free downloads from inside the banks’ website. Once you get the hang of importing your data, it won’t take long to do it each month.

Like Mint.com, you classify expenses into categories, and Quicken will remember those classifications moving forward. You get access to a variety of reports on your spending, similar to those available on Mint.com.

Quicken provides some basic forward-looking reports that are unavailable in Mint.com. Not every type of expense is included in their cash flow projections, but major bills are. This is a nice visual planning tool.

Quicken is not free to use. You pay a one-time license fee and then can use that software as long as it is installed on your computer.

Microsoft Money

In 2009 Microsoft retired its paid-for versions of Money, its personal financial management software. As part of its phaseout, Microsoft has made free sunset versions of Money available for download at Microsoft.com/Downloads; search for “Money Sunset Version.”

These free versions provide basic functionality that is similar to what you’ll find in Quicken. You can import your bank and credit card transaction information into Money Sunset using Money-compatible files supplied by most banks (these are the same file types Quicken supports).

Before you start using Money, be aware that the only technical support available for this software is online. That makes this software a good fit for those who are slightly more tech-savvy.

You Need a Budget

Although I’m not normally a fan of the word budget, I like this software called You Need a Budget. It is available in an online version or as a CD-ROM that can be downloaded to your computer. Like Quicken, you pay a one-time fee for a one-user license.

You Need a Budget is distinct from the other financial tools mentioned because of its planning components. You can track your spending and import files from your bank like you do with Quicken or Money, but you can also do a whole lot more.

Beyond historical tracking, You Need a Budget wants you to break free from paycheck-to-paycheck living. Yes, you give every dollar a job, based on what you established in your spending plan, and you set up savings goals for those non-routine expenses that typically bust your budget, but after that, you focus on building savings so you have a buffer against future needs.

I personally use You Need a Budget and love it. It gives me the historical data I can get from Mint.com or Quicken, but makes saving much easier for the goals we discussed in chapter 4.

But I Buy Everything on Credit Cards

Many people have told me over the years that they don’t need to track expenses because they pay for everything, and I mean e-v-e-r-y-t-h-i-n-g, with their credit card. They pay their credit card off each month and rely on the reports from their credit card company that break down their spending.

I’m not a fan of this approach and wouldn’t recommend it to anyone ever. It is a proven fact that consumers spend more when they purchase using plastic rather than cash.[90] Buying something on plastic distances us from the pain of paying and helps us feel good about our purchase, whereas paying with cash is painful, since we hate to part with our money.[91] You can tell me that you are the exception to this rule, but I still disagree. You spend more when you pay with plastic because your money is not as real to you, plus you don’t have the same boundaries that cash creates.

Also, more often than not, you can’t keep up paying the balance in full each month. I fell back into credit card debt on two separate occasions as I told myself that I would only charge what I could pay for at month’s end. At some point I didn’t want to or couldn’t pay the entire balance and started on a slippery slope into debt.

If some of you are saying, “Yeah, but I get all these rewards from my credit card. I use it exclusively because I’m a very savvy consumer and am, in essence, getting something for nothing,” here is one final thought: Friends, credit cards offer rewards because you spend more when they are there.[92] Proceed with caution, because this is dangerous ground.

There are enough automated expense tracking solutions available that I don’t think you need a credit card to do that job for you.

Using the Information You’ve Got

Tracking expenses isn’t a magic formula that, when you do it, poof! your finances turn around overnight. The transformational power of expense tracking comes when you use the information as a decision-making guide. There is no power in mindless behavior. Measure your progress against your goals. Let your past expenses help you see where you need correction. Talk with those who share your finances about trends and patterns so that you can plan for a better future.