Spending time on our spending: 3 ways to see where your money is going

This Friday, we got hit by the news that inflation levels here in The Netherlands have skyrocketed even further, to a whopping 17,1%

Now, it’s not all doom and gloom!

There seem to be some that have doubts about the validity of this number.

It is mainly caused by energy prices being 114% up compared to a year ago. And the calculation is made as if you’d have to start a new energy contract today.

So, your reality might be a bit better than this 17,1%.

While you, unfortunately, don’t have any control over the inflation you have to face, what you spend your money on is up to you!

So today, we’ll talk about spending.

Investing can lead to great results, as we saw in the story of our three investors last week.

We saw them turn $96,000 of savings into between $764,020 and $1,366,329 over 40 years, depending on their timing or if they were “DCA-ing”.

While all of this sounds great, we can’t forget that we first need to be able to save before we can even think about investing.

Another reason to talk about saving and thus what we spend.

The one thing you can control

We can’t control inflation.

It is pretty hard to control our income. Even though we can, of course, try by negotiating, job-hopping, side hustles or other income streams. But it is not easy.

What we can control, to a large extent, is how we spend our money.

This doesn’t mean living a very frugal, “cheap” life but making conscious decisions about our spending.

If done well, our spending should reflect our values.

We should spend more on things we care about (or that are essential) and less (or nothing) on unimportant things.

Understanding your spending situation

Before you can make informed decisions about what to save on, you first need to have a good idea of what you’re currently spending on.

There are a couple of ways to do this:

• Your bank does this for you

• Get the data from your bank and make a manual overview

• Use a third-party fintech app/website

Your bank does this for you

Some banks offer a neat overview of your expenses, categorised to the best of their ability into a clean pie chart.

Some banks doing this well are N26, Monzo and Revolut. Still, many traditional banks seem to realise that they can’t stay behind compared to these ‘neobanks’ and are trying to improve too.

Manual export and clustering

If your bank doesn’t create a neat overview for you (looking at you, old school banks 👀 ), don’t worry!

You can do it manually too.

It should be possible to download your transactions as a CSV file (comma-separated values, the input for an Excel sheet).

You can often find this on the desktop version of your online banking platform.

After downloading the CSV and opening your transactions in Excel or Numbers, you need to create some categories and add these to each transaction.

This takes some manual work, but the insight gained will be worth it.

Categories you could think of are:

Fixed costs

• groceries

• rent

• energy

• insurances

• internet / mobile

• etc.

Variable

• Fun money

• Hobbies

• Going out

• Sports

• Clothes

• Dining out

• etc.

Mate, I can’t be bothered to go through all of that…

Fair enough!

Plenty of FinTech apps are jumping in that gap and doing the work for you.

Europe introduced a law in about 2019 called PSD2. It basically says that if you want to share your banking data with a third party, your bank should allow and facilitate this.

There are plenty of good apps out there.

I am currently testing YNAB (a big budgeting app from the states, about €11 a month) and Spendee (€4 a month if you want the bank connection).

I’ve also heard good things about Monse, though I couldn’t connect my ING account for some reason.

In a couple of weeks, I’ll post reviews of the apps mentioned above!

Righty-tighty or lefty-loosey

Whether you want to manage your spending very tightly or have a more loose, laissez-faire approach, it all starts with a clear overview of how you spend.

There are many different methods to follow.

There’s the rigorous “giving every euro a job”-way they preach over at YNAB.

There are more broad approaches, like assigning a number for a category and seeing later in the month if you have made it. E.g., “I’ll try to spend no more than €300 on groceries this month”.

There’s also the 50-30-20 rule, which divides your money into 50% needs, 30% wants and 20% savings.

And of course, there’s “I hope I have something left at the end of the month” too (not advisable, but sometimes just our reality 😉).

However you handle budgeting and spending, it is something personal. And something worth experimenting with, to find what works for you.

What about you?

I’m currently trying out tight budgeting to see what it’s like, after years of “getting it roughly right” of spending by category.

What about you? Do you have a system? What works for you?

Please let me know by sending an email to [email protected]!