Is 2021 going to be your best year yet? Is this the year that you’re going to attain financial freedom?
As much as I’ve been preaching the gospel of thriving this year, I’m here to tell you that it won’t happen miraculously. To make 2021 your year financially, you’ll need to put in some work. I’ll show you exactly what you need to do by sharing what I learnt from a year of tracking every dollar that I earned.
When 2020 began, most of us were super excited about the audacious goals that we had set and the great things we were going to achieve. One of the things that I was determined to do was to increase my net worth.
The first thing I did on 1st January was to create an Excel spreadsheet titled ‘2020 Expenditure Tracking.’ Allpersonal finance books I had read assured me that tracking my spending was the only way to gain control over my finances, the only way to ensure that I was living below my means.
I had several motivations to keep up with this habit, one of them being that I had just moved to a new country, and was now living in an extremely expensive city (Dubai) that has shiny objects all over. It’s super easy to get trapped into credit card debt due to lifestyle inflation and lifestyle hyperinflation here as you YOLO (are we still using this one?).
I’m also 100% responsible for myself with no backup plans such as trust funds. It’s just me against the world!
I had to do the work to stay afloat and thrive while at it!
“The goal is to be mindful of your spending but not obsessive.” Money Diaries by Lindsay Stanberry
How to keep track of your finances
Before we cover what I learnt, I’ll give you a summary of how I tracked my spending.
Step 1: Created a budget
I started by creating a budget in my 2020 Expenditure Tracking spreadsheet. It was a simple spreadsheet with two columns. One column had the budget category and the other had the amount.
Step 2: Recorded all expenses
For the first 3 months of the year, I would write all my expense in the Notes App on my phone as soon as I made a purchase. At this stage, I didn’t categorize the purchases, the goal was to make this process as easy and fast as possible to avoid giving up.
At the end of the month, I would categorize the expenses then transfer the information to the spreadsheet.
In April, a friend introduced me to the best app to track spending, Toshl Finance. I started using it instead of manually recording my expenses.
Step 3: Review my monthly expenses
At the end of every month (yes, I didn’t skip even one!) I would have an accountability session with myself where I would review my spending.
I’d use a journal to answer questions such as ‘which of my purchases this month were impulsive? How many of my purchases this month had long-term value? Did I put money towards something I genuinely care about?’
Find the other questions here. I customised these questions from one of my favourite personal finance books The Financial Diet: A Total Beginner’s Guide to Getting Good With Money by Chelsea Fagan & Lauren Hage.
And now to the juice!…
Financial Habits Tracker
Download the Best Financial Habits Tracker to help you attain wealth in 2021.
“The process of paying attention to your money isn’t about deprivation, it’s about honouring all the time that was spent earning that money and making sure it’s going toward the things in life that make you happy.” Money Diaries by Lindsay Stanberry
What I learnt from tracking my spending for a whole year
1. Managing my money better is the greatest form of self-care
My bank has been sending me interesting messages this month.
“Don’t hesitate to spend on yourself! We are offering you the option to buy now and pay later! Tap to convert your Credit Card Outstanding balance of XXXX into easy monthly instalments.”
“Don’t worry about your upcoming expenses! We have got you covered! Tap to convert…”
I salute their marketing department because they’re about to make loads of money from those who are financially ignorant of the dangers of credit card debt, blood-sucking interest rates and all the hidden charges.
Pay attention to their choice of words.
‘Don’t hesitate to spend on yourself. Don’t worry about upcoming expenses.’
They want me to self-care by swiping my credit card as I buy myself stuff that makes me feel good now. They want me to do that while I forget my upcoming bills since I can always pay later.
If there’s a concept that I believe is totally misunderstood, it’s self-care. Self-care is sold to us as what feels good now in the form of manicures, pedicures, alcohol, face masks, bubble baths, buying more that we’ll ever use or need.
You’re encouraged to ‘treat yourself’ now at the expense of your future self. I believe that most of the treat yourself advice is well-intentioned, but when these activities are done for a long time, they become part of you. They become your lifestyle.
Which leads to debt, inability to meet financial emergencies, retiring into poverty, being trapped in the rat race, financial anxiety, divorce…
I like to think of self-care in the same way I think about financial compounding. When I think of self-care on a larger scale, it totally changes my perspective. Instead of thinking about self-care in bursts of small happiness that I’d get by buying myself the next iPhone using my credit card, I choose to create a system/habits that lead to sustainable happiness. When it comes to my money, tracking my spending and generally learning how to manage my money better is a form of self-care.
Most good things actually require some form of discomfort. Recording all your expenses on a daily basis, denying yourself pleasures so that you save money every month, investing is not fun. But the long term benefits, the compounded benefits are magical. You eventually get to control your money, your life, and your time.
Instead of treating myself, I do the work that sets me up for a better future, for better days where I don’t have to track every dollar that I spend or worry that my next cappuccino purchase will affect my ability to attain financial freedom.
The best way to learn how to get over instant gratification is through reading James Clear’s Atomic Habits.
2. I’m a lover of clothes and style
Even if we spent most of 2020 in our pyjamas, the few times I went out, I’d clean up good! If I had all the money in the world, I’d want to look like Christine from that Selling Sunsets show on Netflix.
Recording all my expenses and reviewing every month helped control the urge to make impulse purchases. As James Clear says, the goal is to “fix overspending before it becomes a lifestyle.”
Remember that when you buy stuff you don’t need, you’re selling your independence and freedom. Debt keeps you owing banks and other institutions which means that as you’re working for money to pay your bills, you’re also working for money to pay interest rates that keep the rich richer.
If you struggle, like I do, with finding the right combination of clothes so that you’re always the most stylish one in any crowd, or life’s just too busy to find time to shop for your best-curated outfit, let Amazon Personal Shopper do it for you!
Amazon Prime membership lets you try up to 8 pieces of clothing & accessories (curated just for you!) before you buy! The hustle is over!
3. You’ll know when you’re living above your means
It’s easy to start the year with the intention to build good financial habits but if we’re not deliberate with our actions, the intentions soon become wishful thinking and we end up living above our means.
People who live above their means often use debt to finance their lifestyles, make financial decisions based on trends & influence from their peers, and don’t save 10% or more of their income.
Every month, I’d ask myself ‘did I set a concrete savings goal and did I meet it?’ I’d go ahead and write down how much I saved/invested, then compare it to the saving goal I had set the previous month. This ensured that I ALWAYS saved money, no matter how small. If I didn’t meet the goal, I’d check all other expenses to establish what I didn’t do right.
When you hold such accountability sessions with yourself or even with friends or a financial advisor you’ll know when you’re living above your means because you know exactly what percentage of your income you saved. A lot of people don’t know when they’re living beyond their means because all they look at is how much money they have in their checking/current account and their credit card limit before making purchases.
There are a lot more factors to consider in order to know if you’re living above your means.
4. You can’t depend on motivation to save money
When I shared the article on 12 things to do to set yourself up for financial success, most people who read it told me ‘I hope I’ll be motivated enough this year to follow through with my financial goals.’ No darling, you will not.
Depending on motivation to save doesn’t work 99% of the time. The world is designed to keep you buying stuff you don’t need and to keep you trapped in debt.
You need to automate your savings and investments by applying for a standing order with your bank. Call your banker and a set up a system that ensures the money you intend to save every month is deducted before you have access to the rest of the money. With time, you will learn to live on less.
‘Tiny, what’s your net worth?’ is a reminder in my calendar that pops up on my phone every end month. This reminds me to open my Net Worth Tracking spreadsheet and update it and also think about if I’m working hard enough to move to the next stage of financial independence.
As Dave Ramsey teaches, “personal finance is 20% knowledge and 80% behaviour.” You have to customize your environment in a way that encourages you to win every day.
5. Your circle of friends matter
If your inner circle is full of people who don’t talk about money and are not aggressive about securing the bag, you’ll keep living in fear of money, you won’t know if you’re paid fairly, you’ll be stuck in debt longer than you should, and you won’t know the best investment deals in town!
A dear friend had ignored his student loan for 5 years. This debt was accruing interest and he was also being charged $60 penalty fee for each month that he wasn’t paying the loan. Since I’m always talking about money, he finally felt compelled to come up with a debt payment plan. This process also made him realize that he’s qualified for a debt waiver if he can come up with the full amount within a few months. That’s the power of having the right people in your circle!
Most of my best investments of 2020 were introduced to me by friends. It’s stuff I would never have thought of had I remained in my cocoon of hiding my financial struggles and wins.
This year, keep friends who encourage you to keep as much of your money as you can.
Earning money is one thing, keeping it is a totally different ball game.
6. Don’t compare your financial journey with other people’s journeys
What will happen is that you’ll end up spending a lot of time envying their journey as opposed to celebrating your wins, both big and small. And of course, you’ll end up spending more as you try to look like them.
This is why reviewing your finances every month is super important. It keeps your wins at the top of your mind and controls your urge to make impulse purchases.
If you do compare yourself, make sure it inspires you to do better!
7. To win with money, think long term instead of always being on crisis mode
When I moved to Dubai, I was shocked to learn that people here pay rent quarterly. You can choose to write your landlord 2 cheques each worth 6 months of rent, 3 cheques each worth 4 months or rent or 4 cheques each worth 3 months of rent. Some people pay the whole year’s worth of rent in one cheque!
Since I was used to the Nairobi life where you pay rent at the beginning of every month, I struggled to wrap my head around this concept. As months went by, I adapted to the system and started appreciating it. As soon as I pay my 3 months rent, I relax and focus on other financial goals until the next cheque is due. This system has taught me to have a long term plan for my money as opposed to always being on a financial crisis mode.
Exposure is indeed an invaluable thing!
Having an emergency fund worth of 6 months living expenses also helps you to relax and focus on bigger financial goals. It gives you a sense of security, you’re assured that if you lost your job or had a financial emergency, you would cover it without getting into debt. An emergency fund is a sure way to reduce most of your financial anxiety.
Instead of focusing on cutting back the number of lattes you buy per month like most popular personal finance writers advice, focus mostly on managing ‘The Big 3’ spends: Housing, Transport and Food.
Track your expenses but focus on the bigger picture: building wealth.
8. You make better decisions
You’ll often meet a lot of people who live delusional financial lives. They don’t know how much debt they have or have no debt payment plan but are still buying non-essential stuff. They want to be millionaires but have no pragmatic plan to get there.
Tracking your expenses gives you clarity. Your numbers will tell you if you’re doing well financially or not.
If you know the numbers, it’s easier to make big life decisions such as a career transition. If you have an emergency fund, have a debt payment plan, you invest monthly, then you’ll be less scared of leaving a job, moving to a different country, leaving a toxic relationship or pursuing your passion.
Tracking my spending for a whole year made me realize that to have the kind of life I desire, I need to earn more. This knowledge fuels my dedication towards building my side hustles and cutting back all unnecessary expenses and investing on a monthly basis.
9. Budgets are meant to be flexible.
“What percentage of my income should I use in different categories?” is a question I get a lot from my readers.
Tracking your expenses for at least three months will give you a clear answer to this question as it answers the classic question ‘where did my money go?’ You will see it on your spreadsheet. With this information, you’ll be able to decide which categories you should cut back on and which ones you should increase.
After four months of tracking, I realised that the budget I had set for my groceries wasn’t realistic, it was less than what I was actually spending. I reduced the amount I had set for home supplies (this includes cleaning products, toiletries, masks, etc) and increased the amount I had set for groceries.
Tracking your expenses helps you stick to a budget because you’ll know when to stop spending on a particular category. With time, you also include stuff you had overlooked or forgotten.
Most importantly, tracking shows you what really matters to you because what you spend your money on reflects your priorities.
10. Small progress is still progress
Building wealth takes time, it takes many years. The most important quality you need to get there is patience. To avoid giving up or falling victim of Ponzi schemes, you need to identify your small wins and celebrate them.
I have a few friends who were able to fully pay their student loans within the first two years of employment. When they shared this win, at first I felt bad that I couldn’t do the same. How come I can’t raise the lump sum as they did? For a while, I loathed in self-pity.
Then it dawned on me that they had options or privileges that I didn’t have. For example, one of them has never paid rent in her life, she has always lived with the parents. This allowed her to raise the lump sum and clear the debt.
I, on the other hand, came up with a debt payment plan to clear the loan n 5 years. I was consistent in 2020 and at the end of the year, I celebrated my win because I’ll be debt-free by December 2021 or sooner!
11. Tracking your expenses will show you your financial weaknesses
While reviewing one of my financial coaching client’s expenses that she tracked for one month, I asked her to identify one spending category that she needed to cut back on. She was shocked to see how much money she spent on alcohol, eating out and clothing.
When we added the total monthly expenditure, her first reaction was ‘I shouldn’t be spending that much when my net worth is so low.’
Before signing up for my coaching programme, she knew that she was spending a lot on the three categories and she knew that she needed to save more money. What she didn’t know is the exact amount she was spending on and how deeply this lack of clarity was affecting her financial freedom journey.
I help people who are struggling with debt, people who are unable to make budgets that work, people who want to grow their savings, people who want to improve the quality of their lives and people who are looking to diversify their investment portfolio to attain financial freedom by offering personalized financial advisory.
Another awesome benefit of tracking your spending is that you’ll get to know which stuff you pay for but aren’t fully utilizing. People pay for gym memberships that they don’t use or online subscriptions that they never use. This is money that should be directed towards your savings!
‘Real Wealth is about being able to make choices.’
Cheers to an awesome 2021! I’ll keep tracking my spending as I’m not willing to lose all the awesome benefits that come with this long-term form of self-care!
Which form of long-term financial self-care will you practice this year? Tell the tribe in the comment section.
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