Why You Should Track Your Spending, Even Though It Totally Sucks

Now you might be asking yourself,

What the heck does that picture have to do with spending?

Well uh, nothing actually. My current stash of photos is limited ok?! But you must admit, it is a pretty cool photo. Right? Right?!

But let’s get back on topic here.

Now, you might also be asking yourself,

“What on earth does she mean by financial freedom?”

What I mean is that I want the ability to work for money because I choose to, not because I have to. (Yay for money and yay for choices!)

“Well that’s just not possible.”

Actually, (you naysayer you) it totally is. There are quite a few people out there who have achieved this before hitting 30 as well. Granted, they made a lot more money than I do, and their spending is a lot less… but regardless, it is certainly do-able! (If you want some proof google Mr. Money Mustache or the Mad Fientist. I dare you!)

“Well how on earth does someone even do that? I’m (insert age here) and living paycheck to paycheck!”

Well first, stop doing that. (Like, seriously, stop it. I know it’s tricky, but I promise you can!) Have you ever taken the time to track your spending? I mean, actually sit down and see where your dollars are going? I know I know, sitting and tracking receipts and bank statements is a bit terrible. But just do it. (Nike!) I did it 8 months ago and realized that about two-thousand dollars was unaccounted for. (Yes, like $2,000 whole dollars. That’s a lot of money for me!) It wasn’t lost or stolen, it was simply spent on things I don’t remember spending it on. That was quite the wake up call for me. (It’s like coffee for your finances? Hmmm, I may need a better analogy for that one.)

I stumbled across this awesome place called YNAB (pronounced y-nab) or, youneedabudget.com. They have plenty of helpful information and I learned a lot from their site. Each dollar you have is given a job and is assigned to a specific category. I am paid monthly, so on the first of each month I allocate all of my dollars into their respective “jobs”. Things like rent, utilities, groceries, dining out, dog expenses… you get the idea. Along with that, I have categories where I’m saving for certain things such as my “Ruby Extras”. I will allocate money here, and each month it grows while I still allocate plenty for all of my necessary expenses.

It is also a great way for me to see where my money is going. I have this problem of “if it’s there, I will spend it”. So just looking at a lump sum in my account made me feel far wealthier than I was. By allocating every dollar into a category I see that “dining out” has $100, and I am far more conscious about where I spend that $100. But if I happen to spend $150 in that category, I can simply cover it by moving money from another category, and it’s not a big deal. (Although it does usualy take away form my Ruby fund… sad times.) It’s all a mental game for me and YNAB has helped me tremendously!

“Ok, ok, we get it, shut up about YNAB would ya?! Get back to this financial independence nonsense!”

Fine… I will. And for the record, I am not affiliated with them at all, I simply like what they have to offer!

There are few ways that one could achieve financial independence.

One way is to have enough invested in the stock market that the amount gained each year is enough to cover your annual expenses.

Now I’m not talking about individual stocks here, no one can “beat” the stock market. (Have you SEEN The Wolf of Wall Street?! All I remember is that things go badly, and they work in the stock market. But that’s all I need to know!)  

When investing, you simply buy the entire market as a total market index fund. (‘Why buy the needle when you can just buy the haystack?’ Is a lovely question posed in “The Little Book of Common Sense Investing”) There’s plenty of resources that talk about this better than I do. Google is a good place to start.

Another way to achieve independence is to form streams of passive income.

Passive income is money that you don’t do work to acquire. (That would be active income, aka, a job.)

“Hey now, you can’t make money without doing work!”

You’re right, you can’t. (Didn’t think I was gonna say you were right, did ya?!) 

Creating passive income does involve work, but only right away. Your goal is to set up systems so it buzzes along without you, or at least with little no effort from you. Some examples of passive income are:

  • Song royalties. An artist puts in a lot of work to create a song, but then for years to come whenever that song is used they receive a small profit. (My singing ability has received amazing compliments such as “When you had the mic close to your face, you actually sounded pretty good.” You hear that record labels?! I’m “Pretty Good”! Contact me when you’re ready to record magic!)
  • Writing a book. You put in the effort to write it, sell it to a publisher, and promote the heck out of it. And although that can be exhausting, in theory it could sell for years to come, with no extra work from you. (Assuming people actually buy your book, that is.)
  • Starting a business that sells a product. I know, this is a bit of a stretch. But if you hire the right people and set up the right systems, you wouldn’t have to do anything except enjoy the dollars you earn!
  • Real estate investing. Buy a property and rent it out to create positive cash flow. Far easier said than done, but it’ll produce a consistent income every month, assuming your tenants don’t burn your house down. (Woah, sorry, that one got a bit dark…)

And many more that I can’t be bothered to write about!

But as hard as this may be for me to admit,

I am not a genius and I do not have all of the answers.

But I am pretty smart, and I know how to do research. I have personally settled on a combination of stock investing and real estate. Housing is by far my largest cost, and a nice little thing called “house hacking” or, having your mortgage covered by roommates (or renters if you buy a duplex) makes your living basically free! Assuming you don’t need to replace the roof or siding within 5 years. (But you could also consider that your “rent” and pay towards those expenses in anticipation of them needing replacing eventually, but I digress.)

I plan to have a property within the next year. Then I’ll take the money I save on rent and set it aside for something else. Probably another property, but maybe I’ll invest it in index fund, or use it to live off of as I travel. The options are endless, and who knows what the future holds?! (Seriously, who? I’d like to speak with them!)

So, what would you do if you had enough money to cover all of your current expenses?

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