Expense tracking is the concept of recording all your expenses and income. The goal is to help you see for yourself where your money goes, and empower yourself to modify your spending patterns.
You might be surprised to see the gory details of your spending habits, and if you’ve ever wondered “where does all my money go” you’ll have plenty of data to sift through.
How to get started
The first step is to acquire some data. Most junior doctors have too many expenses for pen and paper or memory to get you very far, so some computerised tools are useful.
Excel is the classic starting point. Categories and other functions require you to build a more complex sheet. There are pre-built templates on Google.
GNUcash might be for you if you have an accounting background or like free software. It has a steeper learning curve and allows you to get into the nitty-gritty.
Pocketsmith is a simple and easy tool that integrates with your bank account. It costs money – but in return they don’t sell your data.
Pocketbook is a free iOS and Android app that integrates with your bank account. A bit limited in functionality compared to Pocketsmith – but certainly enough to get started. And it’s been bought by ZipPay.
Once you’ve picked an option, import at least one month of data. Three to six months can be more useful, especially if you have fluctuating spending habits.
Analysing your data
First, organise your expenses into categories. Once in categories, you will be able to see how much you spend in each area of your life each month. For some categories, it makes more sense to analyse over longer periods, like one year. A good example of this is car expenses – most of the major things like servicing, rego and insurance happen only once each year, and if you pay them all in the same month it would look very expensive.
Then you need to look at each category and decide if the amount you are spending correlates with the enjoyment you are getting from that spending. This is a personal choice, and you should try to balance current consumption with future consumption in the form of savings or a deposit for a house. Some areas that people often have higher than expected spending include
- Food and drinks out
- Shopping, including clothes and shoes
Income tracking can be very beneficial, especially when combined with checking your payslip to ensure your bank account is receiving the amounts owed.
I’d also recommend tracking your Superannuation income, to check that your employers are paying the correct super contributions. The usual amount is 9.5% of your ordinary time (includes shift loadings but not overtime) earnings. Pocketsmith and Pocketbook can both be linked to Superannuation accounts to simplify this.
Budgeting – the next step
Utilising your newfound knowledge of your own spending habits, you should now be able to create budgets that accurately reflect your current spending whilst integrating achievable goals. This makes it more likely that you will actually stick to the budget you create.
Expense tracking is by its nature backwards looking, tracking money that has already slipped through your fingers. By looking forward, budgeting could help you to actually modify your future spending behaviour and help set you on the path to financial independence.