Discretionary Spending & The Spending Journal

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If you want to increase your success with budgeting and money management, start keeping a spending journal.  Period.

Before starting our spending journals we could not get a solid handle on our budget.  Discretionary spending is the silent killer looking to wreak havoc on your budget.

discretionary spending(economics) The amount or portion of a person’s or group’s expenditures which is used for non-essential or voluntary disbursements; the amount or portion of one’s expenditures which one may make as one sees fit.  – wikitionary

I sense a high degree of passion for debt freedom in most of you, but know the pitfalls we all face while trying to get there and have found our spending journals to be a cornerstone of financial success.

What is a spending journal?

A spending journal is a small notebook for recording your daily discretionary spending.

“A small leak can sink a great ship” – Benjamin Franklin

You do not have to record every penny! What?  That’s right… despite what you may have heard, you do not need to record every penny that flows through your budget in your spending journal – you only need record expenditures that are not part of your regular monthly payments.

For example: You do not need to record your car payment, phone bill, rent/mortgage payment, insurance payments, etc.  Instead you want to focus on the little “nickel and dime” purchases you make throughout each and every day.  You know… the ones that drain your checking account each month and leave you asking, “where did that extra $400 go?”

Note: You do need to keep track of all your money, but your spending journal is only for keeping track of discretionary spending.

Why keep a spending journal?

It will help you control your money rather than you being controlled by your lack of money.

  1. To track the small, everyday expenditures that are causing the small leak in your great ship!
  2. To help you curb spending.
  3. To help you prioritize your spending.
  4. To make budgeting much, much, much easier.
Note: Budgets fail because people have a hard time controlling and tracking discretionary spending.  That trouble ends with the proper implementation of the spending journal!

How to keep a spending journal

Keeping one is easy – don’t let anyone tell you otherwise.

You spend a dollar, you write it down.  You spend $100, you write it down.  Can’t write it down right this second?  No worries – keep your receipt and write it down later – just make sure you write it down!

  1. Keep it simple.  You do not need to be über math geek.  Simply record the date, the amount, the item, and the budget category.  For example, if I purchased a coffee for $1.25 on the 2nd day of the month my entry would look like this:  2nd – $1.25 on coffee = dining & entertainment.
  2. Keep it on your person.  Ladies:  carry it in your purse.  Fellas:  I carry a man bag (I swear I’ll write more about it someday) and keep my pocket-sized spending journal and pocketbook inside.  I keep the bag with me most all the time.  If you’re too manly to carry a bag then keep your spending journal somewhere you frequent daily like your kitchen counter, your vehicle, or at work.
  3. Save receipts. If you cannot record the purchase right away, keep the receipt and record it when you get back to your journal.
  4. Write down every discretionary penny spent.  Not every penny that comes through your checkbook, just the random purchases not already accounted for in your budget.
  5. Total it up each months end. You may hear others advising to total it up every day… don’t bother, that is too complicated.  All you need to do is add up the overall total along with the total of each budget category.
  6. Add the totals to your budget. Now that you have successfully tracked and categorized your discretionary spending, go add the numbers to your budget being careful to fill the proper amounts in for each category.
  7. Adjust your budget accordingly. This is the really cool part. Adjust the amounts for next months projected budget based on the numbers you spent the previous month.  Continue to do this each month, deriving averages in your monthly discretionary spending and always looking to “trim some fat” whenever possible.

Some say to do this for a month or two… I say do it for the rest of your life.  Trust me, it’s easy and it makes all other financial planning/budgeting much easier and less overwhelming.

Note: I’m not talking about using Quicken, or Mint.com… I’m talking about good old fashioned pencil and paper record keeping kept on your person.

Challenge:

Try this for one month.  I’ll bet it makes an enormous difference  in your financial life – even if you thought you already had it in order!

What say you?  Are you in?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.



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1 Craig @ Money Help For Christians

Matt I completely agree that a spending journal is absolutely essential.
I keep every receipt I get and when I don’t get one I use a pen to write on the back of another receipt.
Once a week my wife and I go through all the receipts and enter into our computer program. It is simple and helps us stay on track with our spending.

2 Matt Jabs

Ha ha – I do the same thing… write amounts for other purchases on the back of receipts for other stuff. Whatever works right? 🙂

You do it once/week? We only do it once/month… works great – maybe you could cut it back?

3 Mike Piper

I’m a huge proponent of tracking your spending. That’s why I use my credit card for everything possible. 😉

Differences on tools aside, once my wife and I actually started tracking things, we cut our monthly spending by ~$200 per month. Not huge, but certainly noticeable.

4 Matt Jabs

Ha ha…

We tracked ours through online banking but found that allowed for way too many holes for our situation. But then again… we never reconciled the spending against our checking account statements – which definitely would have helped… but what about cash purchases?

Those are some of the reasons why doing the spending journal has helped immensely. After doing both, we highly recommend the journal!

5 Laura

I had done this a couple years when I noticed my budgets weren’t working. A spending journal helped me discover my financial leaks such as eating lunches out too much. Once I recognized this I included it in my budget and I reduced my eating out trips to something more manageable.

6 Matt Jabs

Dining out was costing us $6,000/year before we became aware of our spending back in January 2009… crazy! Now we only eat out on special occasions – and now we appreciate it sooo much more, and are saving a ton.

7 Amy

I started tracking spending at the beginning of Oct. I am amazed to find that what I have spent on groceries so far this month (for a family of 4) I have spent an additional 50% of that amount on lunches (sandwich + drink at work each day) just for myself. Will definitely be making some changes to that!
Keep up the good work

8 Michelle Traudt

Yes, I totally agree. I’ve started them from time to time in the past. But now is the time that I need to really be diligent. I will plan to start one on November 1st. Thank you for the inspiration!

9 Matt Jabs

Do it Michelle! I guarantee you will be amazed at what you find. I’ll try to remember to check up on you! 🙂

10 Peter

I track my spending, but not quite with a journal as you describe. I keep every receipt that I get, and then I enter every penny we spend in Microsoft Money. Every two weeks or every month or so we go over our budget and see where the holes are.

In our case, the holes usually spring up in the areas of eating out, and entertainment spending.

11 Matt Jabs

Sounds like that is your form of spending journal… excellent.

Wife & I prefer the pen & paper because of the tangibility factor.

12 Joshua Hershberger

Great thought. I try to keep up with everything through online banking. This seems practical and quick for busy people. Thanks, Matt!

13 Matt Kelly

I like where you are headed, Financial Independence, and I think there is a better way to control discretionary spending.

A spending journal is reactive. Cash envelopes are proactive.

With cash envelopes I don’t have to record every purchase and I get to allocate my money when I am doing my budget each month. It’s the difference between making a grocery list and eating before you go to the grocery store Vs going to the grocery store when you are hungry without a list.

Since I know the purpose of each envelope I don’t care where I spent the money so long as I don’t spend the grocery money on beer. However, beer can be bought from the miscellaneous, restaurant or entertainment envelopes.

Thanks for the well thought out post.

Matt

14 Matt Jabs

I love the idea of the cash envelope system, but WHEN I implement it (we should be doing so very soon – based on the findings of our spending journal – we will not discontinue use of the spending journal… instead we will use the two in tandem. It is such an easy thing that requires so little time, yet give so much insight and tracking into my spending.

15 Matt Kelly

Matt, email me. I’d love to send you one of my cash envelope systems that I use with my clients for free.

16 Robert Espe

Matt,
I also use the envelope system (but I use MoneyMatters computer software). However, the envelope system has a weakness, the “Misc” envelope. Most people budget their major items, and then put everything they forgot into “Misc”. Usually making an envelope that should be no more than 5% of a budget 15% or more. Now this may not be a problem for you, but for those just starting out, a spending journal is a great way to figure out exactly what is going into “Misc”, reduce it, and move some of the expenditures into new categories they should have had from the beginning (usually things like clothing, hygiene items, and consumables).

A good addition to the spending journal is to use a check, plus, minus system to track satisfaction (HT Joe Dominguez: “Your Money or Your Life” one of the most important books I ever read). For each item in your journal, think about how satisfied you are with what you got for your money. If disappointed, put a minus, and spend less on such things. A plus for something that was so fulling that you feel you could spend more on such things, and a check for those things that satisfied you, but you don’t feel you would enjoy as much even if you spent more. The idea is to focus your spending, by moving money away from the things you are doing on impulse, into the things that you really enjoy. You spend less by only spending on what you really want, and you stick to your budget better because you don’t feel like you are missing out on things.

17 Matt Jabs

I agree Robert, that is why I believe the tandem use of envelopes and a spending journal is the best way to go. It helps transform “misc” into exactly what it should be – a place for random, unexpected miscellaneous purchases – instead of a category for lumping together uncategorized spending.

18 Matt Kelly

Robert, I agree that miscellaneous should not be a place for all things forgotten. The sample budget I use with clients has 103 budget items – most do not get used and it allows them to remember much of what might be forgotten.

For my wife and I our miscellaneous envelope has $125 per month in it.

Love Your Money of Your Life – the write it all down did not work for me, but assessing + or – what you got out of spending the money is fantastic.

19 Fred

You and that purse of yours! LOL

20 Matt Jabs

For the record… it’s just a backpack – that I always have with me. I LOVE this thing man!! 🙂

21 Neal@wealthpilgrim.com

I do think this is important….but as you know, I also think that tracking the overall average is REALLY important.

By tracking the 12 month moving average, it gives meaning to the monthly numbers….FWIW

22 Matt Jabs

Good point Neal. We should be using the spending journal to figure out where our money is going, then use that data to form the 12 month moving average… to ensure that we stay on the right track.

23 Rex Huston

A spending journal and paying in cash are the two most effective tools to realize how much money you are actually spending.

24 Jason @ Redeeming Riches

Spending journals are very important especially when you are first starting out and trying to figure out where all that money went.

I just talked to someone today who wrote out what they thought was their expenses and subtracted it from their income – turns out they SHOULD have an extra $1,000 a month somewhere, but…they don’t know where it’s going. Spending Journal here they come!

My wife and I don’t do this nearly enough – we probably should and would probably be ashamed to admit that we spend a little too much on going out to eat! =)

25 Heather

My husband and I recently started using a cash envelope system and it has definitely made a huge difference in our discretionary spending. I’m considering using a spending journal, but am not sure if it would be redundant given our current system. Prior to starting the envelopes we tracked our spending over the course of a month, then used that information along with our financial goal information to create our budget and make our envelope amounts. We don’t have a “misc” envelope, so prior to every purchase we have to know which envelope that money is going to come from. We have envelopes for each of our needs, our “want” purchases have to come out of our individual allowance envelope. I’ve found that I spend a lot less now that I have a set allowance for my personal use. Our envelopes are actually zipper pouches (purchased for pennies on clearance!) meant to be pencil cases, but they give us enough room to keep not only the money, but also the receipts to be gone through at the end of the month. The outside of each envelope has a white mailing label with the category on it, then inside has a mailing label with the dollar amount it receives each month. It’s working great for us and I’m excited about reaching our goals!

26 Matt Jabs

Sounds like you two have it under control pretty well. I guess I would say… it can’t hurt to try. Do it for one month and see what you think.

27 kenyantykoon

i cannot say that i have a spending journal because its not true but i have other more effective ways of keeping a check on spending. BTW i think that there is an iphone application that serves this purpose because its kinda hard for a man to carry a notebook and keep jotting away at it- women can men cannot

28 Matt Jabs

Hey Kenyan: What are your other more effective ways? Also… if you can carry an iPhone around why can’t you carry a spending journal? 🙂

29 Austin

This tip was the single best change I ever made to my finances. After even 2 weeks of keeping track I was blown away by how much money I was spending on the $5-10 purchases and how much it was adding up to be.

Try it for a week, at least, and you’ll see the numbers and want to make a change in your life.

Great advice.

30 Matt Jabs

I obviously agree Austin… I think the biggest “barriers to entry” for this simple concept taking hold is that most people think it is a pain to keep a spending journal when in actuality it is super easy. I have yet to have someone who started doing it tell me it was hard. 🙂

Way to go man, congrats on your success… keep it up!

31 Sean

Matt,

A spending journal is a fantastic idea. I used something similar for awhile, but then over time found that mint.com was the best way for me to track my expenses. While some personal finances gurus out there will tell you to stay away from credit cards, I have found mine to be the best way of tracking expenses.

I put everything on one card, and allow Mint to track and categorize everything. From there I pay it off every month (that is the most important part to this system of tracking, obviously). But it has worked out really well thus far.

This is my first visit to your site, and I gotta say I am really impressed. Keep up all the good work, and looking forward to reading more in the future!

32 Matt Jabs

Ha ha… that’s ironic Sean, cuz my wife and I used to use Mint and our online banking to track our spending but it just simply did not work for us, although it did get us started down the right track!

At the end of the day, each of us has to do what works for our situation… as long as we do something!

Thanks for visiting, and for the kind words… I appreciate it. Cheers man!

33 Amy

I think the spending journal and the envelope system serve different purposes. The first lets you see where your money is going and the second is a budgeting system to limit what you spend in different categories. As I said earlier I have been using spending journal for Oct, and it has been a real eyeopener. But I haven;t tried to limit my spending in any way. I am now thinking, that based on the information revealed by my spending journal, to start an envelope system for some things.
Great to hear everyone;s ideas.

34 Matt Jabs

You’re right… they serve different purposes. And used together they will work to bring all of us to a level of higher accountability.

Isn’t it so exciting to gain more control over money? 🙂

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36 Steve in W MA

@”Some say to do this for a month or two… I say do it for the rest of your life. ”

ha ha ha! There you go! Good one, Matt. I totally agree. As you say, “Trust me, it’s easy and it makes all other financial planning/budgeting much easier and less overwhelming.”

37 Bil @ Homestead Freedom

I know you wrote this a long time ago, but I just wanted to say thank you for this advice. I have been doing this for a couple of weeks now and it has truly helped. Not only do I see where the money is going, but the book in my pocket also makes me ask, do I really need that item!

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