The use of debit cards has created a generation that does not understand how to track spending. We have to rely on apps or spreadsheets to enter our transactions and hopefully generate some sort of budget. The use of apps should make it easier but you still have to understand the underlying principles.

When I was in high school, albeit thirty years ago, they still taught accounting. We learned about income statements, cash flow, balance sheets, and other simple accounting principles. This was also the time that they taught home economics. I even learned how to sew.

Like many of us, the first time I opened a bank account I received a checkbook with a check registry. I was able to track my spending by adding each transaction to the registry. As soon as I received a debit card I failed to enter all the transactions.

Make Sure You Track Credit Cards

Credit cards made it even worse. As I mentioned in a different post, my budget was only to account for the major bills and make sure I had enough leftover at the end of the month to care for those. I never accounted for savings or my credit cards and failed to track the daily debit card transactions.

Even after my bankruptcy, I built out a balance sheet in excel, which allowed me to track my debit card purchases but still did not account for my credit cards. This caused me to increase my debt and started the endless cycle once again.

Now that I am spending more time analyzing my spending, crafting my budget, and paying off debt, my excel sheet has been expanded.

Track Every Expense

I track all expenses now, from the smallest credit card purchase to how much I am adding to savings. I also track my net worth. Seeing these numbers has made me focus more on my goals.

Using the balance sheet, I built out a reasonable budget, then worked backward. Analyzing my trends made me realize how much I am spending on frivolous things. Spending $80 a month on coffee, $75 on alcohol, $400 on eating out, gave me the ability to reevaluate.

The more that I analyzed, the more I realized that we were spending way too much. When I began making six-figures at my new job I just adjusted my spending up. One thing about the pandemic that has helped me is the fact that I spent more time building a much more manageable budget.

Working From Home Helped

It was the combined factor of eliminating my commute, working from home, and understanding that I was already spending less, that led me to start building wealth.

Spending time reading personal finance blogs, connecting with the people on money twitter, and searching through the posts on Reddit kept me on track. I began thinking more about my retirement, where I wanted to live, what I wanted to be doing, and how much I would need.

This caused me to reevaluate my financial decisions again. With my travel budget gutted, I put that towards debt. Cutting back on eating out, I added more to my retirement. We did not adjust much on either alcohol or coffee since we had to allow ourselves some sort of comfort.

You Still Need A Budget

I also rebuilt my budget. Using the 50/30/20 budget and paying down debt I built my net worth from negative to over $60k in six months. I did use a bit of my savings to kick-start the process, so it was not all through pure hard work. But by tracking every penny I built a consistent budget.

Once that was done, I realized how much I could reduce my spending and increase my savings. I began doing research on investing and retirement accounts. I already had a 401(k) and a 457 account but was not tracking either.

I also finally got around to combining my other accounts with my current employer’s 401(k). I increased my percentage from three to six on the one account and added an additional percent to my 457 account.

Start Investing

When all of that was complete, I turned towards investing. I began with a simple $500 and opened an Ally Invest account. I made the initial mistake of opening a managed account I added some funds to an individual account and made my first stock purchase.

Now I have over $3600 in the two accounts and have recently opened a Roth. Not an overwhelming amount of money but the psychological impact of seeing my net worth increase has led me to decrease additional categories.

I look at my expenses in each category and prioritize. Can I further reduce my take out budget? What about my subscriptions? Where are the luxury categories and where are the necessities? The 50/30/20 helps with those resources by indexing the categories by needs, wants, and savings.

Reevaluate Your Health Coverage

Expanding my categories to break down my health care costs I was also able to change my plan during open enrollment. This change will decrease my monthly premium by $350 without changing my monthly spend on medical costs.

What I realized during open enrollment was the difference between plans was mainly in the out of pocket maximums. Since I was already tracking my expenses I was able to make that adjustment without sacrificing coverage.

This additional amount will add to my savings and reduce my budget. After the first of the year, my budget will now be close to $2500 less than this year. This is a combination of paying off debt, adjusting my spending, and reducing costs.

By reducing my spending I have also reduced my targeted emergency fund. I will still save six months of expenses, but having fewer expenses allows me to put more into my investments. Currently, the majority of my emergency fund is in savings, because it is easier to access.

Each step has led me to substantially increasing my net worth, and see my goals more clearly. Tracking my spending on every transaction I was able to build an accurate picture of my financial health.