For the last 10 years or so, I’ve tracked every dollar that we spent. There are multiple reasons to do this, of course. For some, it may be about ensuring that you are not overspending your income, or perhaps to ensure that you are hitting savings goals. For me personally, I do it to ensure I’m keeping my spending in-line with our goals — so that we don’t get carried away with lifestyle inflation. After all, when you are planning for many years (even decades of retirement), spending levels matter — a lot! If you are projecting a 3.5% “Safe Withdrawal Rate” — the difference between a $110k lifestyle and a $140k lifestyle is an extra $857k you need before pulling that retirement trigger!!!
$110k per year safe withdrawal / .035 = $3.14M needed upfront
$140k per year safe withdrawal / .035 = $4.0M needed upfront
Wowsa!!! That’s quite a difference (and likely another 5 years or so of work) if you can keep your spending under control!
So let’s take a look at how I track my family’s expenses using Google sheets:
First — you need the data
For a long time — and I mean about 9 years — I pulled data manually at the end of the month or quarter. This means logging into every credit card, every bank account, getting amazon ordering reports, mortgage statements, etc — and plugging into Excel or Google Sheets. That was a multi-hour effort every few months, but to be honest, I always sort of looked forward to working on that and seeing the answers.
Since that time, I’ve discovered a nifty little tool called Tiller that will pull credit card and bank transactions auto-magically into a Google Sheet.
Second — Categorize your spending
Once you have your data, the next step is to categorize your spending. This is where the real magic happens. By organizing your expenses into categories like groceries, dining out, utilities, entertainment, and so on, you can start to see where your money is actually going. With Tiller, this process is much easier because it allows you to set up automatic categorization rules. However, I still recommend reviewing and tweaking the categories regularly to ensure everything is aligned with your financial goals. If you want to get really deep insights, you can also setup sub-categories — for example, the category of “Insurance” might have subcategories for medical, dental, auto, life, etc.
Third — Analyze and Adjust
This is where the magic happens. By setting up a pivot table (grouped by months, quarters, and years), I have an immediate visual of how I am tracking. Want to project out the entire year? Easy. Want to go back and look at last time this year? It just takes a couple of clicks!
I typically look at this pivot table every week to see where our money went, how we are tracking against spending goals, and figure out where we are for the year. Are we spending too much on eating out? Did our utility bills spike? Are we on track with our savings goals? This step is crucial for avoiding lifestyle creep and ensuring that our spending remains in line with our long-term plans.
For example, a few months ago I noticed that our Utilities-Streaming category was creeping up month by month. That was a cue to and cut some of the lesser used streaming channels. Cutting those out immediately freed up $50 or so in monthly expenditures. Similarly, medical spiked this year because we have another kid in braces. We’ll get through that bubble and those costs should come back down.
Fourth — Project for the Future
Once we have a solid handle on what we are spending, and using our analysis to make adjustments, we can make informed decisions. One of the first things you have to know when planning retirement is “how much does it cost you to live?” As I mentioned earlier, the difference between spending $110k a year and $140k a year in retirement could mean needing nearly a million dollars more in savings! By keeping a close eye on our current spending, we can adjust our retirement plans if necessary, either by saving more or recalibrating our post-retirement budget.
Let’s Go to the Spreadsheet!
Final Thoughts
Tracking expenses might seem like a daunting task at first, but it’s one of the most powerful tools you can use to ensure your financial health. Whether you’re just getting started or you’ve been at it for years like me, remember that the goal is to align your spending with your values and long-term goals. Whether you use a simple spreadsheet and import your own data or a you use a fancier software package, the important thing is to stay consistent and make course corrections as needed. In the long run, you’ll thank yourself for the peace of mind and financial security it brings.