Retirement Investing 101: Track Your Expense (2024)

One of these days, I’d like to put together an early retirement guide, but I just don’t have time to write the whole thing at once. I’ll have to write it a piece at a time and then put it together later. Our kid just takes up so much time. I don’t know how my mom did it with 3 boys.

Let’s take a step back and start at the beginning. The first step to retirement investing is actually quite simple, but it can be a lot of work if you haven’t done it before. It’s essential to track your expense so you know what you are spending money on. You need to be able to save first so you’ll have money to invest. Most people have no idea where their money goes. Well, they have some idea, but they lose track of how much they really spent. Do you know how much you spend on eating out, groceries, coffee, clothing, apps, cable TV, and magazine subscriptions every month? Keeping track of your spending will help shed light on your spending habits.

Once you know what you are spending money on, then you can see if any of those things are really higher priorities than financial security. Is the HBO subscription worth $25,000 in retirement saving? That’s what it will cost you at $20/month for 30 years. You’ll miss out on the 7% compound interest and that’s what’s really painful. How about getting your shows for free from the library instead? That way you don’t even have to wait a week to see the next episode of Game of Thrones.

How to track your expenses

I have been tracking our monthly expenses in detail for a few years now and it has been really helpful. We can see where we spend our money and it keeps us on track. You never want to spend more money than you make and you’ll be able to see that at the end of every month if you track your cash flow.

Old school spreadsheet

When I first started, I went with the old school method of tracking everything on a spreadsheet. I used Excel, but if you don’t have it, then you can use a free spreadsheet like Google spreadsheet.

I put each expense category in the column and an expense line item in the row.

It will be tedious to get the spreadsheet setup just the way you like it, but after a few months, it will be a piece of cake because you’ll already have the template from the previous month. I manually go through our checking account and credit cards and enter each line item on the spreadsheet. This can take a little time, but the act of typing things in forces me to remember what we spent our money on throughout the month. This is a good thing when you first start tracking your expense. If it’s all automatic, you won’t have to recall what you spent $17 on at Target.

Accounting software

I really like the spreadsheet method and I think everyone should use it when they are starting out. A spreadsheet is perfect when you have one checking account and a couple of credit cards. However, most of us develop more complicated finances as we build our wealth. I have 2 business checking accounts, a money market account, a business credit card, a brokerage account, 401k, rollover IRA, Roth IRA, Prosper peer to peer lending account, our kid’s 529 plan, and Mrs. RB40’s accounts. It’s still possible to keep track of everything on a spreadsheet, but it can be a lot of work.In that case, using a spreadsheet is tedious and it can be a big barrier for some people. Luckily, we live in the 21st century and there are other tools out there.

The alternative is to use accounting software like Quicken, Personal Capital, or Mint. I haven’t used Quicken, but I think that’s a good option. These days I use Personal Capital to keep track of my expenses. Personal Capital and Mint are free and I think they they are very useful for most people.

Sign up with Personal Capitalthrough this link.

You can link all your financial accounts in Personal Capital’s site and it will aggregate all your cash flow information. At the end of the week, I go to the “Spending” section at Personal Capital and check how much we spent. I check each line item and make sure they are categorized correctly. I had to change the category once in a while because sometime they get it wrong.I just had to do it once and it will remember the account for the future.

The nice thing about Personal Capital is that I can look at our personal and business accounts separately. I can check the accounts that I want to see and it will just show that. The picture above is just our non housing expense in January. I need to do my business accounting separately because it gets a bit tricky with estimated tax and individual 401k.

*That ATM/Cash category can be tricky. One way to deal with it is to use your credit card for all your purchases to make it easier to track. For us, the cash allowance is our discretionary spending. We can use that money any way we want and it works well for us. I know I spend more when I pay for everything with my credit card. It might be different for you. If you need to track cash spending in detail, then you need to keep a log book and write down everything you spend money on. It’s also helpful to keep all the receipts.

Tracking your expense

Tracking your expense is an essential first step toward financial independent. You need to be able to see what you spend money on first and then you can figure out the next step. It’s a good habit and it will serve you well as you build your wealth.

Do you track your expense? What do you use?

Sign up with Personal Capitalthrough this link.