Building That One Game-Changing Money Habit

In my journey toward financial independence, I’ve found one habit to be more important than all the others.

This is the single piece of financial advice I’d offer to anyone looking to improve their financial well-being, and it’s one I strongly encourage my own kids to adopt.

Are you ready for it?

Track every expense

Now, I know that sounds simple, maybe even a little silly to you. But I encourage you to stick with me and hear me out because I think everyone should at least try it for three months to see if it’s something that works for them.

At least for me, it’s been the one game-changing money habit that has helped me spend less than I earn, save a substantial amount every month, and reduce the financial stress and uncertainty that used to weigh me down.

In the rest of this article, I’m going to outline exactly why I think tracking your expenses is such a powerful habit and provide practical tips for making it work in your own life.

Do I track every single expense, you might be wondering? Yes, every single one! If I spend $2 on a candy bar or $1.50 on a soft drink from the vending machine, I track it in my app. Now, I don’t think everyone has to go to this extreme, but the mindset of tracking “everything” seems to work best for me. If I allow myself to track some things but not others, I start to slide down a slippery slope.

Trust me, doing this for every purchase is the only way to get the full effect of this habit and actually experience the benefits I’m about to mention.

Without further ado, here they are:

Reasons to Track Every Dollar You Spend

You’ll become more aware of your spending. Most people have no idea how much they’re spending until they start tracking it. The first month or two is an incredible way to gain better visibility into exactly where your money is going. At the most fundamental level, this kind of awareness is the foundation for any new habit or change you want to make in your life.

Tracking your spending makes you more intentional. The simple fact that you are now tracking your spending will make you think twice about whether or not you make a purchase. Just about every night before I go to bed, I look back at the previous day’s spending and enter it all into my expense tracking app. Knowing I’ll be doing that makes me ask myself if I want to see a certain purchase show up on the list. If not, I don’t buy it.

You’ll naturally spend less money. As a result of being more aware and more intentional with your spending, you’ll naturally start to spend less. But there’s another reason too. Tracking your expenses, if you do it the way I recommend, creates a small, daily effort that helps you get to know your spending habits better. This extra effort serves as a friction to spend that didn’t previously exist. It makes spending a little bit harder, and its requirement is a small but real investment of your time and energy.

Tracking your spending is more motivating than a budget. My wife and I have tried budgeting more times than I can count. It’s just not for us. Setting aside a certain amount of money to spend in certain categories each month and then trying to live within those constraints feels too much like work. It also doesn’t feel motivating to us, because even meeting the budget feels like you’re treading water, not making real progress. The way we do things now, we have a ballpark figure for living expenses. Anything we spend less than that is a sort of instant win— we can save or invest that money and see our net worth grow. By tracking our expenses every single day, it’s easy to connect what we do on a daily basis with reaching our long-term goals— and that’s always more motivating.

Tracking expenses increases your financial confidence. Another underrated aspect of tracking your expenses is the general feeling of confidence and security it brings. In the past, before we really got into this habit, there’d be times when I’d have no idea how much money we had left to spend in a given month. If we were planning to make a large purchase, it would mean me getting my laptop out and trying to reconcile everything against our bank account. Now, I feel like I’m up-to-date on our finances on a daily basis. I know exactly what we’re spending, and it’s easy to see how that will project out to the end of the month. There are no more financial surprises, and that helps me sleep better at night.

Pro Tips for Getting Started

Consider using an app. If you want to track your expenses daily, you really want to have a system that is convenient and encourages frictionless use. For me, this means using my phone and a simple, intuitive app. This way, I can add expenses from anywhere, and I don’t have to be sitting at a computer.

Track your expenses daily. Some people might be able to get away with tracking their expenses weekly, or even worse, monthly, but not me. If I let this habit go even for a few days, it starts to add up, and eventually, I won’t want to do it all. I’ve also found the habit is most powerful when I do it every single day without fail. It’s easiest to remember what you spent while it’s still fresh in your mind.

Find a routine that works best for you. It’s important to evaluate your own personality and work style so that you can give yourself the best possible chance of succeeding at this habit. My advice is to make expense tracking a natural part of your evening routine, if you have one. If you don’t currently have an evening routine, I highly recommend it as a way to unwind and ease into bed peacefully. I track my expenses at night, when I’m feeling calm and relaxed, rather than during the busier parts of my day.

Don’t let tracking your expenses stress you out. Tracking your expenses can be a bit stressful if you aren’t well prepared for it. In the past, when I was younger and living paycheck to paycheck, I often found myself losing sleep over my lack of money. At the end of the day, it’s not worth your health or peace of mind to be stressed about money. There’s a time to be strategic about money and a time to put it from your mind completely.

Use a simple categorization system. In order to gain a full picture of your spending, you’ll probably want to not only track your expenses but also categorize them as well. There are a million ways to slice this pie, but I advise going with a simple system to start. You can always adjust it later. Here’s the system that works for us with our main spending categories: Mortgage, Groceries, Utilities, Insurance, Phones, Gas, Eating Out, Clothing, Health Care, Entertainment, Amazon, Miscellaneous.

Don’t skip a day for any reason. This piece of advice is really just an extension of one of my favorite pieces of advice: never miss twice. You’re only human, and eventually, you’ll slip up and miss a day of tracking your expenses. But the real mark of character is what you do the next day. Commit to never missing two days in a row because that’s the point at which it becomes a slippery slope. Once you allow yourself to miss once, you’ll find it harder and harder to get back on track.