In this post, I write about how I went from tracking expenses to tracking systematic investments and how it changed the way I look at money and has taken me to financial independence within a decade of regular employment starting from a net worth of minus three lakhs (I was in debt).
This post was first published in Sep. 2015. After seeing a couple of threads on the subject at Asan Ideas for Wealth (FB group), I thought of reviving it.
how about covering the other half of income-savings-investments? ie Tracking and wrangling with Expenses? I am keen to understand how an expert like you would log and manage expenses.
I went from writing expenses (in a 100 page bound book !) by date – then throwing it away to logging all expenses categorised ( eg: groceries, tax, utilities etc) and I noticed wastages and was able to cut down wastages…
What struck me about his comment was the phrase, “other half of income-savings-investments”. Tracking and managing expenses is a deeply personal topic and I think it is best for me to state, ‘what I do’ and let you critique it.
I have the account notebooks maintained by my great grandfather (would crumble into bits if I try to open it), my grandfather, and of course, my parents – using which I was able to write about, Inflation in India: Some Real Numbers.
My parents managed the expenses and tracked them until Jan. 2006. When my dad fell ill, I started to use his notebook along with my wife to track expenses. We used the so-called envelope system like my parents. We used plastic dabbas instead of envelopes because they tore often when we repeatedly checked if they were empty or not!
In the envelope system, each type of monthly expense – milk, vegetables, salary for paid help etc. – would be placed in an individual container at the start of the month. The idea is that the basic and mandatory monthly expenses are accounted for, at the start of the month itself. Only the amount in the container should be (theoretically speaking!) used for a particular expense. Each month we would try and keep some dabbas in different places in the house to see if that would prove lucky and reduce our expenses. No such luck.
In 2007, I switched from a notebook to a graphing software called Microcal Origin. I had never used Excel at that time. I still maintain that file, but do not write all entries.
Soon when I started making retirement and goal planning calculators, my emphasis shifted from “how are we spending?” to “how much are we investing?”. That was a bit of a watershed moment for us. The goal each month was to invest as much as possible. Initially, I was not able to invest as much the calculators told me to.
Somewhere along the line, I realised that as long we invested enough, it did not matter how much we spent (without borrowing). That is when I decided to give up the envelope system.
The key, in my opinion, is to track investments. Not expenses and not definitely not returns (at least for the first few years). So I created columns in Excel where the monthly investment target for retirement and other long-term goal were listed for the current year. I decided to increase this investment amount by say, 8-10% each year.
Later on I developed it into a monthly tracker (download link below) which everyone could use. Here is a screenshot to illustrate my point.
I tried to beat the target as much as possible that it irritated my wife. At times we did not have enough to meet monthly expenses because I would have invested a large chunk of my salary as soon as I got it. Yes, ‘pay yourself first’, expenses = income – investments, and all that sort of thing. It worked wonders to my net worth.
Unfortunately, I was a little too obsessed about investing. For close to 6 years, I was able to invest like clockwork. Thankfully, much of that was during the sideway market after 2008.
Unfortunately, soon I witnessed the perils of unexpected recurring expenses. My mom broke her hip (read about my experience with cashless mediclaim) and required an attendant. This sent my cash flow for a toss. My investment schedule was severely affected and it took me quite a while to recover. Fortunately, the markets started to move up around that time and all that “capital in the market” paid off big time. By December last year, I was able to catch up with my investment schedule.
My point is, first I was obsessed with tracking expenses. I got over that but instead became obsessed about investing each month. I soon realised that life can make investing regularly difficult at times. Now I am a lot more relaxed. As long as I meet my target for the year, I am fine. Don’t need to do it each month.
Systematic investing with a little luck from the market has taken me to financial independence:
- The rise and fall of my retirement corpus
Older versions of above Post:
If you are a young earner, I suggest you do not track your expenses or spending habits (get rid of those budgeting apps). Instead, focus on your long-term goals and how much you need to invest for each of them. Set your targets and do your best to meet it at least on yearly basis. If you do it on a monthly basis, you can engage in some guilt-free spending faster!
You can use this monthly financial tracker for this purpose. This is based on the version that I use, but only much neater! If anyone wants to build an app based on this, do let me know.
Announcement: Travel to Europe at 40-50% lower air fares!!
Pranav Surya just posted in AIFW that “Oman Air + Lufthansa are running a fantastic promotion for cities to travel from Delhi”. If you want to avail such huge discounts (eg. Delhi to Berlin only Rs. 23K) , follow the steps pointed out in our new book: GameChanger (Rs. 199 hardcover; Rs. 99 Kindle). Additional tips are available in the Travel Training Kit (Rs. 199)
Ask Questions with this form
And I will respond to them in the coming weekend. I welcome tough questions. Please do not ask for investment advice. Before asking, please search the site if the issue has already been discussed. Thank you. PLEASE DO NOT POST COMMENTS WITH THIS FORM it is for questions only.
[contact-form][contact-field label=’Name’ type=’name’ required=’1’/][contact-field label=’Email’ type=’email’ required=’1’/][contact-field label=’Comment’ type=’textarea’ required=’1’/][/contact-form]
GameChanger– Forget Startups, Join Corporate & Live The Rich Life You want
My second book, Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want, co-authored with Pranav Surya is now available at Amazon as paperback (₹ 199) and Kindle (free in unlimited or ₹ 99 – you could read with their free app on PC/tablet/mobile, no kindle necessary).
It is a book that tells you how to travel anywhere on a budget and specific investment advice for young earners.
The ultimate guide to travel by Pranav Surya is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
You can Be Rich Too with Goal-Based Investing
My first book with PV Subramanyam helps you ask the risk questions about money, seek simple solutions and find your own personalised answers with nine online calculator modules.
The book is available at:
Amazon Hardcover Rs. 271. 32% OFF
Infibeam Now just Rs. 270 32% OFF. If you use a mobikwik wallet, and purchase via infibeam, you can get up to 100% cashback!!
Flipkart Rs. 279. 30% off
Kindle at Amazon.in (Rs.271) Read with free app
Google PlayRs. 271 Read on your PC/Tablet/Mobile
Now in Hindi!
Order the Hindi version via this link
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google PlusandPinterest
Do check out my books
Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a youngearner
The ultimate guide to travel by Pranav SuryaThis is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)