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Retirement Investing 101: Track Your Expense


Track Your ExpenseOne 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.

track your expense financial independent

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 Capital through 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.

track your spending expense financial independence

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 Capital through this link.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 39 comments… add one }
  • PowerOverLife December 16, 2016, 12:23 pm

    Tracking your expenses is a critical part of retirement. If you want to live large during the golden years, you need to calculate your expenses and plan on working hard to secure that future. On the flip-side, you might have less expenses than right now and therefore, you can gauge on having a lower amount of income needed in retirement.

    But this was a great article, because expenses is the biggest part of planning out retirement.

  • Danielle December 13, 2016, 10:23 am

    I have been tracking my expenses on a monthly basis for many years now. I use both a spreadsheet and also Personal Capital. Every couple weeks I take a look at Personal Capital to ensure all my expenses are categorized correctly. It is really a great tool to itemize expense and determine where all your money is going.

    • retirebyforty December 15, 2016, 7:55 am

      That’s exactly what I do. Personal Capital is great, but I love my spreadsheet too.

  • Zara September 12, 2015, 6:33 am

    Hi Joe. I prefer broadly bucketing all heads of expenses under either income/expense and keeping it simple.
    However, I am clueless on whether investments fall under income/expenses. Similarly, am unable to categorize refunds that I receive when I close an account. For instance, a library membership deposit I made is refunded to me when I close my account. Do I place it under income?

    • retirebyforty September 12, 2015, 11:04 am

      Typically, investment income like dividend or capital gain will just go into the income category. Refund should go into income as well. It’s just easier that way.

  • Hammo May 2, 2015, 12:58 am

    Nice one Joe, it’s looks like you have a found a nice balance in your life and are very lucky that your wife supports your passions. Money isn’t really worth having if you are unhappy, and money certainly can’t buy long term happiness.

    I track my expenses periodically as a kind of financial health check, but are not too focused on continual savings as I have good spending habits anyway. Sometimes you can spend too much mental energy on saving money and could utilise that energy on generating income.

    Time is the only thing that we can’t produce, but we can certainly use it smarter.

  • Michelle July 5, 2014, 11:42 am

    It took a little while for me to find out which tracker that fit our lifestyle to track our spending and budgets. Once that was situated, everything got a little bit easier.

  • Kailash June 5, 2014, 3:39 pm

    Hey vJoe 🙂
    I was surprised when I saw your photo, which made me say out loud “hey, I know that guy!” It’s great to see that you’re happy as a stay at home dad, and trying to keep it that way.

    I’ve attempted to use spreadsheets, etc in the past, but never kept it up for long. I do mostly use my credit card, and look at my statements at least once a week, but I never save them or use that information in any tracking — they provide a year-end summary that I peruse, but that’s about it.

    I played around with Mint for a few months; The visuals were great, but it duplicated a lot of entries and cleaning that up was a mess, and I lost interest.

    I’ve recently gotten more serious about watching expenses, so I’m going to make another effort in budgeting and in the mean time, i’m adding your blog to my list of reading 🙂

    Keep it up!

    • retirebyforty June 5, 2014, 11:58 pm

      Give Personal Capital a try! 🙂 They’re pretty good, but actually you might want to get Quicken or something like that if Mint didn’t work.

  • To anyone looking to do ANYTHING with their finances, I always recommend tracking your expenses. It’s the first step. You can’t decide where you’re going until you know where you are.

  • Marie @ My Personal Finance Journey May 17, 2014, 10:15 pm

    I have been tracking my expenses for almost how many months by using the mobile application. But now I think, I should switch on to writing it down or by using an excel spreadsheet.

  • No Nonsense Landlord May 17, 2014, 9:27 am

    I like Quicken the best. And I also use Excel for projecting expenses. Every receipt is logged into Quicken, and reconciled with the month end statement.

  • Turtlevestor May 16, 2014, 5:21 pm

    I’m a spreadsheet tracker. I’ve developed my own system over the years and without it I’d be lost. I track my gains in each account vs using Mint or other sites.

  • Even Steven May 16, 2014, 2:15 pm

    I have the same spreadsheet I have been using for a little over a year without plans to change. What I usually do is check my Mint.com or Personal Capital to the general movements in my accounts, including stocks and net worth.

    • retirebyforty May 19, 2014, 9:48 am

      Personal Capital is great for general movement. I like using the spreadsheet too. You’re much more aware of the changes.

  • Larry Gray April 5, 2014, 1:48 pm

    I am someone who once made a high income and we did not budget so there is not
    a whole lot left! Your focus on budgeting and frugality really struck home with me
    on what I might have done! We did try to do things right and managed to help our
    daughter in college to supplement her scholarship (s). As someone who has long
    done lending, I have seen such a huge need for what you teach. You are providing
    answers to the vast number of young to middle age adults who are raising families
    and still holding onto the American dream of owning a home. You can be of such
    great help to so many. I sent the link to your blog to a couple of people already and
    intend to save it for others. I may be 62 and not quite in the same situation, but
    budgeting is very important for my wife and I now they I am down to a part time
    income even if working full time! However, I have slowed down too, so it is not just
    more work on less mortgage loans. However, I just care alot about the caliber of work
    I do and have rescued people when they were faltering with other loans, etc. I love
    the challenges but do need more time to smell the roses, and therefor a good budget plan!

  • DAD February 9, 2014, 4:42 pm

    Joe – have you tried Good Budget? I LOVE their iPhone app.

  • Bryce @ Save and Conquer February 6, 2014, 9:28 pm

    I track our expenses using Fidelity’s Full View. It is based on Yodlee and is similar to Mint.com. Our expenses haven’t changed much over the years since our son was born, so we have a good indication of what we will spend in retirement. We are shooting to have enough in 9 years to cover double our current expenses, sans retirement savings and payroll taxes. The plan is based on the Trinity Study 4% safe withdrawal rate adjusted for inflation over 30 years, cut to a withdrawal rate of only 2% for ourselves. That should have a good chance of never losing assets no matter how long we live. (My wife will only be 49 at retirement, so we need our assets to last a long time.)

  • SavvyFinancialLatina February 6, 2014, 8:16 pm

    My boss in high school taught me so much about personal finance. He bought me Quicken so I could keep track of my expenses and taught me about investing and helped me open my first investment account. Very thankful for his advice!

  • Little House February 6, 2014, 7:02 am

    I track our expenses but I use Quickbooks. I’ve used it for years since Mr. LH has a business and we have invoices we bill to clients. I like their graphs and charts and since I enter the charges myself, there aren’t any mistakes unless I forget something.

  • Insourcelife February 6, 2014, 6:27 am

    We use Mint and it has been great for tracking expenses, net worth, savings rate etc. I also use Google Docs spreadsheet for some other stuff just because it gives me more flexibility to play with the numbers.

  • Sarah February 5, 2014, 10:36 am

    I’ve been tracking our expenses for over 20 years using Quicken. Almost down to the penny. I’m a bookkeeper and really enjoy doing it.

  • Done by Forty February 5, 2014, 8:30 am

    You’re absolutely right, Joe. Without tracking expenses, very little progress can be made on building wealth, because it’s not clear what areas require improvement.

    We still rock the Excel spreadsheet because I can get granular data and control that I simply can’t get from software. (e.g. – buying a bunch of groceries at target can be categorized as groceries, instead of retail spending). But I can see the value of those tools for people who want automation more than they want the ability to dive into the details.

    • retirebyforty February 5, 2014, 9:20 am

      I love the spreadsheet too. It’s nice to sit down at the end of the month and see how we did. It’s a bit nerdy, but I like it. Most people probably can’t handle that kind of detail, though.

  • freebird February 5, 2014, 8:08 am

    I have a relatively crude method using bank records. I keep two bank accounts, one is for money coming in like paychecks, dividends, tax refunds, etc, and the other is for money going out, mostly rent checks and online bill pay. I move money from one bank to the other rarely and only in nice round figures so it’s easy to know how much is my total spend over a long period of time just by listing these few transfers. What this method won’t do is break down expenses into categories, and it can’t tell whether spending is rising or falling over time. But it gives a pretty accurate long term average of total spending.

    You can probably do the same thing by creating separate accounts all in one bank if they allow that. I prefer separate institutions because I don’t like having my paychecks deposited into an account whose number is printed on every check I write. Same deal for credit cards, I only carry cards from banks where I don’t have a deposit account. The price of all this compartmentalization is that I have to keep a list of websites, userids, passwords for online access, but I think it’s safer this way.

    • retirebyforty February 5, 2014, 9:17 am

      That’s an unusual method. I’ll have to think about it. Life is already complicated enough as it is. 🙂

  • davidmichael February 5, 2014, 7:28 am

    Joe…I totally agree with you. For my wife and myself, having been retired for 20 years, and as our income decreased over time due to a few major life events that included a major investment company bankrupty thanks to Michael Milkin, I write down every dime we spend into a notebook on a daily basis. It takes a few minutes and has become more of a game making it fun to see if we stay within the budget of $2200 at the end of the month.
    I started with a spread sheet, but found it took too much time, so a simple notebook works great for us. And, Mint provides a double check-up, but the notebook track is the best for me.

    On the other hand, I have friends whose retirement income is substantial and they do not keep track of their expenses. They eat out most of the time, rarely cook at home, travel, and have a grand old time spending their income. So…in response to Ernie’s thoughts that he also doesn’t keep track his daily expenses either, I suspect it is because he also has a pretty good income. Believe me…when one gets down to the nitty-gritty reality of living off $2200 a month and having a grand retirement in the process, it’s essential to keep track of expenses.

    • retirebyforty February 5, 2014, 9:16 am

      I think you’re right about the income. When I had more income, it wasn’t as essential to keep track of our expense because we had a lot of head room. Now that it’s a bit tighter, we need to do it. I don’t think I’d eat out that often even if we have a lot of retirement income. Thanks for your input.

  • bill February 5, 2014, 7:20 am

    No mention of Mint?? They probably do a better job of tracking expenses/budgeting

    • retirebyforty February 5, 2014, 9:14 am

      There was a small mention of Mint. I like them, but Personal Capital is nicer for investors. I tried Mint a few years ago and I really like them too. Personal Capital is about on par with that now (3 years ago.) Not sure how much Mint has improved since then.

      • Teri May 30, 2015, 5:43 pm

        I have tried both Mint and YNAB (You Need A Budget). YNAB has been much more useful to me, and most who try it.

  • Mom @ Three is Plenty February 5, 2014, 6:39 am

    We use You Need A Budget to track all of our expenses – both the desktop and iPhone version. I do it all manually as well about twice a week. We don’t really track cash that well though – it’s kind of our “black hole”, but we almost never carry cash either, so it’s not too bad.

    I love that it can give me pretty graphs and charts and export to Excel(csv) if I want to do more data mining on it.

    • retirebyforty February 5, 2014, 9:10 am

      I’ll check it out. Thanks!

  • Petra February 5, 2014, 5:48 am

    I have an app on my smartphone that I use to track my expenses. I have to put in manually how much I’ve spent, and what category the expense was. Then, at the end of the month I feed in the totals in my spreadsheet program to see whether I’m sticking to my budget. I live in another country, so most of the options you mention aren’t available or practical for me. What I do does work for me, though!

    • retirebyforty February 5, 2014, 9:09 am

      Wow, technology is great. I’ll check around to see if I can find a good free app to help. Thanks!

  • jane savers @ solving the money puzzle February 5, 2014, 5:41 am

    While I track utilities, insurance, interest rates on debt and other large expenses I refuse to track my weekly food and walking around money budget. That is time consuming and restrictive and makes me feel resentful like I am on a diet.

    I use a zero budget. All my money is allocated before my pay cheque arrives and there is just a little bit left over for food, car gas and whatever else I choose to spend it on.

    There is always someone to play with or fight with when you have siblings and I could get housework done or even read a book while drinking a cup of tea when my boys were playing.

    • retirebyforty February 5, 2014, 9:08 am

      If you can stick to your budget, then you don’t really need to track your expense because you already put a cap on it. Great job!

  • Ernie Zelinski February 5, 2014, 2:19 am

    Your question: “Do you track your expense?”

    I am one of those people who doesn’t track my personal expenses. I do track my business expenses, however, because I need this for filing income tax and minimizing my taxes.

    Back to personal expenses. I don’t track these expenses because I am basically a lazy person and would find it very time consuming and tedious to track personal expenses. The thing that I have going for me is the fact that I am motivated enough to be sufficiently successful in life so that I earn a better income than 90 percent of corporate workers by working only 3 or 4 hours a day. I also realize that these are the two reasons that contribute to people being broke and not having saved enough for retirement:

    1. A necessity is any luxury that the neighbor happens to have.
    2. Instant gratification takes too long.

    In short, because I learned to do without a lot of things over the years that people wasted money on, I did not ever need to track my personal expenses. Now that I am making a great income, every time I go shopping for groceries I try to think of at least one expensive item to purchase as a treat for myself. Often I purchase two or three items.

    On the other hand, I drive a pristine 2003 Solara which cost me only $9,500 three years ago (and a rusted-out 1995 Camry that doubles in value every time I fill it up with gas) even though I can purchase several brand new BMWs for cash. I learned a long time ago that spending a lot of money can get you trapped into thinking you are prosperous and having a good time — when all you are doing is spending a lot of money. That’s why I don’t need to track my personal expenses.

    Ernie J. Zelinski
    The Prosperity Guy
    “Helping Adventurous Souls Live Prosperous and Free”
    Author of the Bestseller “How to Retire Happy, Wild, and Free”
    (Over 200,000 copies sold and published in 9 languages)
    and the International Bestseller “The Joy of Not Working’
    (Over 250,000 copies sold and published in 17 languages)

    • retirebyforty February 5, 2014, 9:06 am

      Ernie, you are an exception to the rule. I think most people who don’t track their expense will have a hard time saving and investing. For frugal folks like us, it’s helpful, but not essential. If we live a moderate lifestyle, then we are already saving as much as we could.
      I think making great income is the right way to go too, but it takes time to do that. Everyone can start tracking their expense and save more right away. It’s an inspiration that you can make a great living with 3-4 hours/day. Thanks for sharing.

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