Last Updated on June 28, 2020 at 9:44 am
In this edition of reader story, Kaustubh Prasad shares his lessons and insights from tracking expenses for the last 25 years!
About the author: Kaustubh Prasad is the Managing Director of Sudyog Infraprojects Private Limited – a real estate development company, and he holds a double major in Computer Science and Economics from the University of Wisconsin-Madison.
About reader stories: In this category, we showcase the money management experiences of readers. Check out some popular articles: I achieved financial independence at 35: My journey and lessons and We lost sleep after using a retirement calculator! This is how we recovered. Explore the full reader story archive. Do contact us, if you have a story or know of a friend’s story that the DIY community would benefit from.
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First of all, a big thank you to Pattu Sir for allowing me to share my personal finance experience on his blog – which really is the sacred “book” of the world of personal finance.
The year was 1992 – I was just about 12 years old and had found my true love – a computer (monochrome monitor, MS-DOS, 5.25” floppy drive etc. – terms that sound ancient today). My father had a habit of maintaining a diary of his personal income and expenses. He had been doing it since forever, it seemed like to me. One day, he gave me a floppy disk (another ancient term) of a software called Accord and asked me to try it out. Me being me – in love with anything to do with the computer, I installed it and realised it was not a game. It was a personal accounting software, and my father who was uncomfortable using a computer asked me to enter his information from his diary into the computer.
I loved it. I loved typing on the keyboard. I loved the sight of the computer when the covers (yes, we used to cover “desktops” back then) were removed. I started entering my father’s income and expenses every weekend and giving him an income vs expenses report at the end of the month – how much he had saved, and where he had spent. And thus began my journey in the world of personal finance – well my father’s personal finance.
In 1995, I started using Microsoft Money. Now, I could see bar charts, pie charts – and give a visual representation of my father’s finances to him. My father had a great habit of noting down EVERY single expense he would make. He used to carry small post-it notes in his wallet (this was 1995 BC – Before Cellphones), and make note of the expense whenever he would make it. Once he was home, he would get the notes together and enter them in his diary. Every year, the diary would change, but what would not change was the diligence with which he entered his information in the diary.
Fast forward to 1998 – it was time for me to go to the US for college. My first time away from home. A new currency too. My father had started me in the habit of maintaining my own personal diary where I would record my finances (read pocket money), and I was quite disciplined about it too. But in dealing with a new environment full of new people, I somehow never got to tracking my expenses.
By the 2nd year of college, I had racked up significant credit card debt. The worst part was – I really had no idea how I had done it. I was spending money, but I couldn’t survive without spending money, right? I started applying for more credit cards, so I wouldn’t max out my limit. I started looking at lower interest rates and transferring balances to other cards. I had entered the classic debt trap.
I took one step back. I downloaded MS Money, but this time I started tracking my own expenses. The first thing I noticed I started doing was spending less money. I realised I was doing a lot of impulsive buying – perhaps because of social pressure. But the minute I had to ENTER that transaction of buying something frivolous somewhere, I ended up asking myself WHY did I need to buy that? I could escape judgement by anyone else, but surely I couldn’t escape my own judgement of myself? I wasn’t going to be a foolish spender.
I started to make a plan of how much money I would set aside each month to pay off my credit cards, recording all my expenses diligently, and eventually, I was able to clear all my debt. It really wasn’t rocket science – it was just about being disciplined – of course, easier said than done, but the one way I got the discipline to my fiscal life was by deciding I will track my money.
I graduated from college in 2003, moved back to India, and had to take over our business after my father passed away. It was like starting life all over again, but the one thing that remained constant throughout, and remains till date, is my habit of tracking my finances. When I moved back to India, I would enter transactions to the exact paise (I could tell you how much money I had in exact change at any point in time), but now I have started rounding off to the closest 10 rupees.
I got married in 2011 and was faced with a new challenge (the married folks are allowed a laugh here). My wife wasn’t in the habit of tracking her expenses. For a few months, we faced an issue where a lot of our expenses were just “Miscellaneous”. She would see me enter all my expenses on the computer, and then ask me how much we spent on what every month? I would tell her our largest expense category is “Miscellaneous”. She herself realised how much sense it made to start tracking our household expenses – how much we are spending on groceries, fuel, domestic staff, gifting, eating out etc. We now have a system where she messages me her expenses, and I enter them in Quicken, which I was been using since 2004.
Today, we have a system where we know how much we have, we have budgets for our monthly expenses that we try and stick to, and we can plan vacations, major purchases etc. according to our financial situation.
A very long story, but what has it taught me? A lot of things, really, and I think they are best summarised in the points below.
Tracking finances makes life simpler – Everyone has a different relationship with money. But everyone needs to have SOME relationship with money. To me, it makes my life so much easier if I know how much money I have at any time (across all verifiable asset classes), and be able to set budgets and stick to them, which brings me to my next point.
Budgeting is important – Well, it is, at least for me. I have noticed my tendency to overspend, and budgeting (regardless of how much money I’ve had) helps me stay in control of my money. And I cannot make a budget for my expenses if I don’t know where I am spending the money.
Tracking expenses is not as boring and cumbersome as it sounds – When I tell my friends I track all my finances and expenses, they give me this look that seems to ask – “Don’t you have anything better to do?” And I ask them one thing – do you brush your teeth daily? The amount of time it takes to brush your teeth is the amount of time I spend daily on tracking my expenses. And while brushing your teeth is in no way unimportant, people can still do without teeth, but life without money (or worse still, in debt) can be pretty rough.
There is no ONE way of doing it – The day I do it (track expenses) works for me. My father did it differently, and it worked for him. As long as there is SOME method I am using to track my finances that works for me, I will be in better control of my money – it goes without saying that I will be in control only if I am disciplined about whatever method I am using.
Discipline is key – It’s funny – I noticed a positive correlation between my discipline in entering my finances and my discipline in spending money. There is no point in tracking finances for a month, then stop, then start again after a while. We can’t put a temporary hold on spending money, then why should we put one on tracking it? Continuity is extremely important – and that can only come with discipline.
I control my money and not vice-versa – It really isn’t about how much I make, or how much I have. A person making 10,000 rupees a month will have to plan his or her expenses around that much money. A person making 10 lacs a month will be able to afford a lot more, but it would still be stupid of them to spend more than what they make. Even Mike Tyson went bankrupt. The idea behind tracking my money is to be able to control it (to the extent that I can), rather than allowing it to control me.
Technology makes things so much easier – I have gone from MS-Dos based programs where everything was manual to MS Money and Quicken that can actually pull out information for bank accounts and investments and simplify the process. I am sure there are several other tools around – I tried developing an app myself a couple of years back – but Quicken works best for me, maybe because I have used it for so many years.
There is no price for peace of mind – One of the reasons I track my finances so closely is because I have experienced a time when I wasn’t tracking them at all and I was in financial chaos. Being in debt, and living in debt, wasn’t fun at all. And if a few minutes a day can help me stay out of it, it’s a very small price to pay for my peace of mind.
The above is my personal experience with money. But like Ashal Jauhari of Asan Ideas for Wealth would say, RIPFPI (Remember it’s PERSONAL Finance, PERSONALISE it).
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