How To Monitor Your Spending Habits
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A habit is an acquired behavior pattern that is followed unceasingly and conditioned to be almost spontaneous. Everyone needs to nurture better money habits, especially monitor their spending habits. This may include spending a lot immediately after pay day or making purchases in the eleventh hour, or even saving 10 per cent of your salary every month to donate to any charity of your choice.
We are easily influenced by what we find around us.
Loved ones: If your close one always brought gifts while visiting a relative, you have a 98 per cent possibility of doing the same without questioning if it is always necessary or appropriate.
Cultural and social norms: The diverse group you’re a part of has a different way of managing money when compared to another culture group.
Beliefs: Religion does play an important role in your spending habits. The believer might donate to their place of worship while the non-believer invests in science.
Media: We are victims to the media that preys on our temptations. The characters you grew up watching never had the need to plan for an early retirement.
Over time, it becomes more difficult to change a habit because that habit has evolved to be natural to who we are and how we act. Research shows that we automatically favor what is familiar to us: even if we know it doesn’t add any leverage to us. The challenge is creating a new normal, which involves behavioral change. For example, if you’ve spent years eating the same way, it’s extremely obvious that it is tough to change that pattern. That holds true even if you want to change your spending habits. Know and understand what the new pattern would look like.
Tracking your expenditure involves identifying your expenses throughout the month. It's an essential activity that you must ideally do every day throughout the month. It may seem like a tedious job to itemize your expenses when you first begin, but understanding why it's important to track expenses and how to do so with minimal effort can help you successfully commit to the activity and become more aware of where you are spending and how much.
Why should you keep track of your spending?
It helps you stick to a budget: If you don't track your money, you won't know when to stop spending in a given category (food or clothing, for example). At the end of each month, review the expenses you tracked to compare what you spent versus what you planned to spend according to your budget. If you overspent, look for ways to cut spending in a certain category. If you spent too little, you might want to allocate more to the savings and debt repayment. What you learn from tracking expenses helps make changes to the budget for next month that put you on better financial footing.
It helps you identify your spending issues: If you don’t track your expenses, you will not be able to see the negative spending behaviors you have acquired. You might learn from tracking your expenses that you are paying monthly for a service you don't use (an unused gym membership, for example), in which case you could cancel the service or switch to a cheaper one. You might realize that your habit of dining out or buying clothing from expensive brands is causing you to run out of money by the month's end. You might observe that your annually increasing monthly rent now makes up an outsized percentage of your monthly income or that you aren't earning enough to lead the lifestyle you imagined. To correct problems like these, you might have to make drastic life changes such as moving to a more affordable residence or getting a second job to earn more money. It won't be easy, but it will be worthwhile if it puts you on track financially.
It helps you meet your financial objectives: Whether you set a goal to build an emergency fund, pay down debt, set aside money for retirement, or save for college, vacation, or other short-term goals, you're more likely to achieve these goals if you budget for them, create a savings plan, and then track your spending to ensure that your spending matches your priorities.
An important part of forging good money habits is not just understanding ‘what’ you spend on but also ‘why’ you spend the way you do. After all, you can’t change what you don’t understand. One must understand their money habits and attitudes to know how we spend, save, invest, go into debt, give to others and so on. It’s also nonjudgmental; many people are reluctant to confront their money history because they’re worried about being judged—or judging themselves. However, monitoring your spending habits is essential to an early retirement.