Now that I’ve used a superlative like “easiest”, I feel like I need to back up this money move with some data. Before that, let’s talk about what the money move is.
Before I do, I want to draw attention to the idea that many people value concepts or ideas by how *hard* they are. All things of value require hard work, right? Wrong.
It is true that *many* things of value require continuous or hard work. They often have a greater impact than things that could fall into an “easy” bucket, but it’s important not to dismiss something because it seems easy.
Alright, with no more preface, the money move is simple:
Track your daily expenses in a notebook for 30 days.
MO’s MONEY MOVE
What does that mean exactly? I can tell you what I have done.
- I buy the cheapest small notebook (something like this) I can find
- I write the date at the top of the first page
- I add a single line with a brief name/description and a price: “Tea – $4.50”
- I repeat step 3 for each item I spend money on in a day and repeat step 2 for each new day.
Sometimes, that’s all I do.
Sometimes I do a little bit more, such as daily/weekly/monthly totals. This helps at the end of the month when you say “How did I spend that much money?” You can easily figure out exactly where the spending happened and whether that was worth it for you.
How does a spending journal reduce my spending?
“This tracks my spending, this doesn’t reduce my spending.”
Directly speaking, yes, this is true. But it does two things which lead to most people reducing their spending.
- It focuses attention on spending.
This invites more intentional and conscious decision-making, which means we have better control over impulses, habits, and cravings. This is also known as System 2 thinking, as detailed by Nobel Prize Winning Behavioral Economist Daniel Kahneman in their book Thinking Fast and Slow. System 2 thinking requires more cognitive effort, so we typically only use it when we need to figure out something that requires reasoning or complex decision-making.
Most of the type, as a method of efficiency, we use System 1 thinking, which requires nearly no cognitive load, also sometimes called “gut feeling” and is our default method of thinking when we encounter situations that are similar to the past ones. Thirsty? Buy a drink. Hungry? Where’s the nearest restaurant?
For the 30 days of this effort, we want to reshape these habits and gut feelings with more intentional thought, and to do that we need to focus that cognitive effort when we spend money. - It adds friction to purchases.
The idea of adding or removing friction to help control our behavior came from another Nobel Prize-winning Behavioral Economist, Richard Thaler, in his book Nudge (if you think I might be obsessed with behavioral economists, you might be right.) In his book, he shows through many studies that you can create vast and drastic changes by giving the smallest of nudges.
Some common examples include adding friction to candy, which can be as simple as moving it off your kitchen table and into a closed drawer, which has been shown to drastically reduce consumption. On the other side, moving running shoes from your closet to be right next to your front door can cause significant increases in the likelihood you will go on a run.
In this case, we want to add friction to spending. The friction doesn’t have to be a lot, simply having to pull out your pen and notepad to write down the thing you’re buying is just a little bit of friction.
Do you want to buy that pack of gum if it requires you to write it down? It can make you think twice, which is exactly what we want.
Do I need to physically write it down?
If you’ve attended any sort of self-help goal-setting seminar you know they are going to ask you to write it down and many studies show that a goal-setting scenario creates a statistically significant result to writing things down on paper.
For that reason, I do write it down. I don’t know of any studies that have tested this with spending journals, but it feels like the right amount of friction for me.
It’s reasonable that if you kept notes on your phone or another digital way it would get the same benefit, as long as you have to manually enter and look at every expense.
Using an automated tool like Rocket Money, Simplifi, Monarch, or any other app, is great for expenses, but not great at putting your attention on every purchase. They also don’t put any extra friction.
Commit to 30 days
Commit yourself, your friend, loved ones, or anyone else who feels like they can be a good accountability partner to do this for 30 days. It is an added effort, but it has the potential to give you real insights into your spending and will almost certainly reduce your spending.
Other personal finance experts, or people I’d put in camp frugality, push you to do this forever, to categorize your spending, and to do so much more. That sounds like way too much energy for me, but it does work wonders for the people who go to such extreme lengths. Some people find it meditative. I find that much effort exhausting.
I like to do a 30-day tracking sprint every year or so to get a beat on where I’m at. It always reduces my spending and gives me insight into where I’m at. To be clear, this isn’t going to make me rich or get me to financial independence, but it’s one of the easiest methods you can do to get a sense of your spending and reduce it a bit.
What do I do after the 30 days?
I would suggest reviewing the data. Do you still value everything you purchase? If so, great job! If not, what would you change? What could you have done differently to reduce costs?
Your Money or Your Life (not by a Behavioral Economist) is a popular financial book, and while I don’t agree with its emphasis on frugality, has an excellent chapter on how to break down, categorize, and track your expenses. The book suggests tracking all your income and expenses all the time forever, which I don’t think is necessary. Still, you can take their information on how to categorize and reduce expenses to great success.
That’s it!
Buy yourself a small notebook and get to journaling. Report back to see how it’s gone, any insights you’ve discovered, and any changes you might make. This is just one of many moves and one that can be repeated over time.
See you next time!
