Thanks, Professor Obvious
Yeah, I know – “expense tracking is critical” seems like an obvious thing to say. But what I’m talking about is detailed expense tracking. Since you’re reading a FIRE blog, you’ve probably got this covered, right? I thought so too until Mrs. FI and I actually started. When we got serious about FIRE, the first thing we did was commit to manually tracking all of our spending.
I was totally surprised at our highest spending category and that it is 20% higher than the next closest category.
The effort has paid off, but not without some tensions (more on that later). And there have been some eye-openers. For example, I was totally surprised at our highest spending category and that it is 20% higher than the next closest category. Any guesses? Anyone? Anyone? Bueller? Groceries! I would never have guessed that and certainly wouldn’t have put it 20% higher than any other category.
What is “Detailed Expense Tracking”?
Good question. I should define what I’m recommending before continuing. If I wasn’t trying to avoid an overly long blog post title, I’d call it “manual detailed expense tracking”. I’m suggesting that you manually record every single expenditure when it occurs. That means you need to be able to access your log from anywhere, anytime. So, you need an app on your phone or a paper notebook (yuck). We use Google Sheets, which is free, and it is accessible on your computer via a browser or on your mobile device via their app.
Obviously, there will be expenses like subscriptions and autopay that just happen without you triggering them. For those, you’ll need to use your bank & credit card statements to catch and record them. Once a month, review your statements and add these recurring expenses into your tracking log.
Finally, do this for at least one year. You’ll want at least a full year of data to get a 100% accurate picture of annual expenses. A year of this may seem like a big hassle. But, the longer you do it, the easier it gets; it just becomes second nature. Once you’re past a year, it’s fun to be able to compare the same month from year-to-year.
You’ll want at least a full year of data to get a 100% accurate picture of annual expenses.
But you’re saying “I’ve got an online service that tracks this for me.” Good, but for this exercise I’m suggesting you manually track your expenses. Automated tracking tools can track your expenses and even pull reports. But do you actually pull reports and dig into them? Are you fully aware of all the individual transactions? Will you zoom in and out to identify trends or expose lumps? If you use automated expense tracking tools and you do all this, that’s awesome, but I’d wager you’re somewhat of a unicorn.
Manual Detailed Expense Tracking:
- Manually record every expenditure when it happens.
- For subscriptions & automated payments, get those monthly from your bank and credit card statements.
- Use a mobile app or notebook to enable recording anywhere, anytime.
- Do this for 1 year minimum.
Benefits of Tracking
There are a lot of benefits to doing this level of tracking. Some of them aren’t obvious until you start doing it.
- Spend Friction – having to log each spend is a tiny bit of friction that rewards you for NOT making purchases. It’s a minor reward, but it works. It’s often easier to skip the coffee, for example, than pull out my phone and record it. And it interrupts the automated routine of just tapping a card and going.
- “In Your Face” Awareness – in today’s world of credit/debit cards, tap-and-go, subscriptions, and automated payments, it’s easy to lose track of the money you spend. This keeps you 100% aware of all the money that leaves you.
- Upfront “Do I really need this” Analysis – logging each transaction is the perfect hook point to ask yourself “Do I really need this?” or “Will this bring me happiness?”. So often the answer is “NO”, and now you can avoid a wasted purchase rather than regret it later.
- Reevaluation of Automated Expenses – this forces you to know and reevaluate any subscriptions or automated payments you may have forgotten about. Every business wants you on a recurring subscription nowadays and these pile up over the years. Not only do they pile up, but their costs silently creep up year-after-year as well. You may find significant savings just shopping for cheaper alternatives in your monthly subscriptions/deliveries; we did.
- Trend and Category Analysis – you may be surprised to find out how much you spend on categories like dining out, for example. Also, you’ll be able to see month-to-month and year-to-year if your expenses are trending up and by how much.
- Identifying Lumps – expenses are lumpy, meaning they don’t always occur monthly and maybe not even yearly. Property tax is a great example of an annual expense that you may miss in your budget if you only looked at one or two months. A major home repair, like a furnace, is something that may only occur every few years, but you still need to budget for it.
- Accountability – if you’re in a relationship, there’s real value in being able to keep each other in check. Before I buy anything now, I’m always thinking “what’s Mrs. FI going to think of this?”; it’s a nice pre-check for me.
- Staying on Path – we know from 010 | Goals: The Power of the Path that if you don’t decide where you’re going and then know at all times where you’re at, you’ll never get to your destination. Diligently tracking expenses every day keeps your FI goals front & center in your mind and constant pulse on your progress.
Disadvantages
Like all things, there are downsides. They’re minor, but I think it’s fair to list them.
- Flak from Others – expect friends and family to tease you a bit over this. The world today is so fiscally irresponsible that YOU’RE the weird one for tracking spending. Even in our local FI group we’ve gotten some raised eyebrows over this. Also, people can be negative because you’re putting in effort to improve yourself and they’re not. I know that’s petty, but it’s just the way things are.
- Hard to Get Started – this will feel incredibly cumbersome to start. Like any new habit, it takes a bit to get into the groove. I promise it gets really easy after a couple months.
- Friction with Spouse – this is the biggest one. You and your partner are going to openly record, share, and healthily question your expenditures. Expect some friction here. Mrs. FI and I have had a heated discussion or two just because one or the other felt attacked. Don’t be judgmental. Don’t take offense. And remember that you’re doing this together, working towards a common goal.
- Feeling Judged or Controlled – If anyone has a spending problem in our relationship, it’s me. Mrs. FI has always been frugal and generally just doesn’t care much about material things. And I don’t care what she spends as long as we’re not being overcharged and it’s something we need or that makes her happy. Regardless, she occasionally feels controlled or monitored even though that’s not the case. And yes, she reads the blog. If she has a rebuttal, I’ll come back and edit/add it. 😀
I think these are really small relative to the benefits. No regrets on going the extra mile to come up with 100% accurate annual expenses. The peace of mind knowing our planning is accurate is worth it alone.
Our Method
We use Google Sheets to track our expenses. It’s free, available on your computer via a browser, and available on your phone via the Sheets app. I created it then shared it with Mrs. FI so she can access it. It’s nothing more than a workbook of spreadsheets, just like Excel. I start a new sheet for each month by copying the previous month and clearing the data. I name the sheets by year and month using a YYYY-MM format. I have a master sheet at the beginning that pulls the totals from each month into a single table. That allows me to see the individual months, totals, and averages at a glance. I can also project our year-end total.
I created a category list that’s a dropdown in the spreadsheet. That keeps our categories clean and allows me to see our expenses by category. I’ll share our categories, but you’ll likely want to make your own. They’re pretty self-explanatory, so for brevity, I’ll just list them: Automotive, Business, Cashback, Cell Phone, Charity, Clothing, Dining Out, Entertainment, Gas, Gifts, Groceries, Home Maintenance, Household, Insurance, Internet, Medical, Miscellaneous, Pets, Taxes, Trash, Travel, Utilities
I also created a “Payment Type” list that is a dropdown to keep those clean and easy to enter. Payment Types: Bank Bill Pay, Cash, Check, Discover, VISA, MasterCard.
Whenever Mrs. FI or I make a purchase, we log it in the Google sheet for the current month. I also try to get paper receipts when possible in case I miss something. I can hear the groans regarding paper. I know it’s overkill, but I’m old and I like paper. Then, monthly I reconcile our bank statement and credit card statements with the Google sheet. Pro tip: AI can reconcile for you – just upload a statement and ask it to add to the Google sheet anything you missed from the statement.
NOTE: This is the exact expense-gathering exercise I spoke about in 017 | The Decision to FIRE and used on our Keystone trip: 023 | A Lean FIRE Vacation: FIRE Risk – EXTREME.
Our Actual Numbers
Okay, I have to tell you: this section feels a little personal to post. But I think transparency is important and most helpful in the FIRE community, so I’m posting it anyway. We have 13 months of detailed data as of this writing. Here are our monthly average expenses by category (rounded to the nearest $50):
| Category | Monthly Average |
|---|---|
| Automotive | $100 |
| Cell Phone | $150 |
| Charity | $200 |
| Clothing | $50 |
| Dining Out | $300 |
| Entertainment | $400 |
| Gas | $200 |
| Gifts | $200 |
| Groceries | $1,100 |
| Home Maintenance | $150 |
| Household | $100 |
| Insurance | $900 |
| Internet | $100 |
| Medical | $550 |
| Miscellaneous | $900 |
| Pets | $350 |
| Taxes | $500 |
| Travel | $350 |
| Utilities | $450 |
Right up front, I’m going to explain the “Miscellaneous” number, because that really stands out in a post about “detailed tracking”. That number is almost entirely a one-time tuition payment for FIcology boy’s last semester of college. And it’s a perfect example of how expenses are not smooth, they’re “lumpy”. If we hadn’t been tracking to this level of detail, that would’ve gotten lost in any estimate of annual expenses.
As noted above, groceries are by far our highest expense which was surprising. It’s easily 20% higher than the next closest categories: insurance & miscellaneous. In fairness, FIcology boy was home between semesters, for the summer, and for extended holidays. He’s a 6’7” hulk of a man that single-handedly doubles our grocery bill when he’s home. This is another great example of a lump – and we caught it because we track this much detail.
The medical category is also unusually high for us. I’ll explain so you don’t worry that something is wrong. For our tracking, I lumped dental & vision in with medical. Most of this was dental related: FIcology boy had all 4 wisdom teeth out and some cavities fixed. And we paid our dental plan (not insurance, a discounted pre-payment plan) out of this category. Again, lumpy expenses that we can quickly identify thanks to this tracking.
Finally, note how low the Home Maintenance and Automotive categories are. We’ve gotten off cheap the last 13 months. But I guarantee there’s a large lump coming in one or both of those. Our HVAC system is 20 years old and they no longer manufacture the refrigerant for it, so that’s going to be a big lump. And my car is 10+ years old and it’s going to need something soon; I’m sure of it.
NOTE: I removed Business, Cashback, and Trash because Business is tracked in a separate ledger, Cashback isn’t an expense, and Trash when rounded to nearest the $50 was $0.
Wrap Up
It’s so important to have an accurate number for your expenses because it’s the basis of the 4% rule. See 007 | FIRE Starter: Introduction to the 4% Rule for a refresher. Remember that the 4% rule states:
Your FI number = 25 x Annual Expenses
The last thing you want is to make life decisions based on an incorrect FI number!
I hope you found this post helpful – both the topic and sharing our numbers. It’s been so helpful to us having others share their experiences and numbers. We want to pay that forward.
How do you track your expenses? Leave a comment below.
Check out the FI calculator while you’re here. And if you like this, please share with a friend and follow us on Facebook.
Okay, FI friend – that’s a wrap. Mrs. FI and I are headed to CampFI Texas this week. Look for details on that in the next post. It’s a privilege to get to write these posts. Thank you for reading. I love you. See you next time! ♥️
-The Professor