The Importance of a Budget And Expense Tracker

Having a financial budget is not easy. Many people try budgeting each year in hopes of tackling existing credit card and student loan debt, but somehow find themselves slowly going back to spending. This was the situation I found myself in for the past few years. My problem was not my salary, or being house poor, but instead finding a reason to  truly become debt free. It's easier said than done.

I've had budgets in the past, and used different apps such as Mint or Clarity Money on my iPhone to track my spending, I didn't really have a reason to take it seriously, because what's the rush, right? We're still young! Also, I really despised having to look at my spending on shopping, and even though I saw the issue, I didn't really know how to fix it. I thought that by using a budgeting app I would be able to keep track of my spending reverse this trend. But once again, I didn't see the rush in having to do it right away.

Then came the realization.  Everybody was talking about how much money they have made on the stock market, and how they are investing their money in real estate and bringing in the passive income. They also talked about how they have college funds ready for their kids, and millions of dollars in their savings accounts for their kids future. And what do I have? Nothing, and $71,000 in debt, not including our mortgage. It's roughly $32,000 of credit card debt, and $39,000 of student loan debt. Yikes!

How were they able to save up so much money? By investing early in their future. You see, with compound interest, any money we put in today will gain interest on it on a money basis. That interest we have gained will also have additional interest on it, further growing your wealth. It's easier shown in an example.

Let's assume we put an initial investment of $5000 into a 401(k) account or a high yield index fund (stock), with an annual average return of 8% interest over the past 30 years. Following that, we'll continue contributing an additional $500 each month. In just under 18 years, we'd have saved up a quarter of a million dollars - $250,000, and we have only contributed $113,000 during that period. That's more than double the return on our investment.

If we were to put the same amount of money into a traditional savings account with at 0.01% interest rate, we'd be walking away with just under $250,000 after 40 years of savings. That's 22 years longer than the example above and that's not enough for retirement.

Now bear with me on this one. If you continue investing for 40 years into the same 401(k), or index fund with an 8% interest annual average return, you'd be walking away with almost $2,000,000... wow!

So it is absolutely crucial to invest into yourself and your future as early in your life as possible. If you can open up a 401(k) account right out of college, do it and contribute as much as possible. The sooner you have a large enough balance in your account, the faster it will grow.

This is why it is super important to budget, and be fully aware of your spending, so you could set goals for yourself to meet your financial needs in the future. Today with credit cards everywhere, it's super easy to overspend and it robs your future.

Have a Reason and a Goal For Budgeting

Having a true reason or goal for the future is probably the biggest motivator to start budgeting. Budgeting is hard, and it requires a lot of work, taught, and constant refining until you find a balance in a comfortable lifestyle while being able to save. We're only on our 3rd month of serious budgeting, but it has truly changed our lives, and we finally see the light at the end of the tunnel for our debt.

If you haven't read my first blog post about what motivated us to become debt free, and to save for our future, I highly advise you to give it a look. It talks about our biggest motivation to go on a debt free journey. You can read about it here: How a Road Trip To Portland Motivated Me To Start My Debt Free Journey

I also made a video talking about how we're motivated by moving to another state and buying real estate as investment property to bring in additional passive income.

Budget The Hard Way First

When starting to budget, it's easy to try to go for the apps on our phones and automate our budgeting. While this might work for some, you need a strong motivation to keep yourself accountable to always checking in with your budget. My advise to you would be to budget in a blank notebook or a piece of paper that will be posted where you constantly see it every day. This will force you to keep updating your budget manually, keeping track of all your expenses because you have to write them down manually. Research also shows that people are more likely to keep working on a new habit that they have written down compared to people that do not.

This is how we first started, and this allowed us to see exactly where our money was going. Take a look at our first budget. While rough, it's a good start:

Keep Yourself Motivated With Friends and Family

Talking about finances publicly is another hard topic for some. But by doing so, you're opening up about your problems, the mistakes you have made and making yourself accountable for your everyday actions moving forward. This step in your budgeting journey is probably the most important, because you'll get a lot of support from friends and family that will motivate you even more to reach your goals. If you have a spending problem, getting the courage to coming clean about how you are planning on changing it will also keep you accountable throughout your journey as your friends and family will check in with you about how you're doing.

Build Your Own Budget And Expense Tracker

Finally, once you are ready, take some time to build your own budget and expense tracker that fits your style. Every budget is different, and every person uses their money in different ways. This is why building your own Excel spreadsheet or Google Sheet will help you with your budgeting journey.

We've vent through many budget templates, some more complicated than others, until we have settled on our current Google Spreadsheet budget and expense tracker that we can both access from our Google accounts. The beautiful part about it is that it not only keeps us on track from month to month, but also allows us to see where our money is going to be in the near future.

Our expense tracker is built in a way that we can do financial forecasting our our money months and years ahead based on the existing information we already know, our income, fixed expenses, variable expenses. and our savings. Since we can see our money ahead of time, we can make wise decisions regarding our Savings plans for 401(k), or investment opportunities. We can also adjust our budget months ahead of time when a major expense is coming up without having to reach for our credit cards.

I go over the new templates we are using in my latest video, so if you're interested, I'd live for you to check it out: