The Quantified Spender: How Keeping Careful Track of Your Spending Behavior Is Valuable

Recently, I attended a community lecture about the idea of the “quantified self,” something I’ve vaguely touched on before here on The Simple Dollar.

The “quantified self” simply means that you keep track of information related to yourself in as many ways as possible, ideally in passive ways, and then you use that accumulated data to make decisions about what you’re going to do going forward.

Here’s a prime example of this, if you’re familiar with The Simple Dollar: recording every dime you spend and then categorizing it all once a month.

It’s simple. Just use a pocket notebook (or a smartphone app like Evernote) and jot down every dime that you spend for a month. If you spend any money at all, write it down in that notebook. Keep every single receipt that you get, too.

At the end of the month, pull out your bank and credit card statements and your receipts and that record of your expenditures and try to figure out where every single dime went. Split all of those expenses into categories – basic food, luxury food, eating out, pet care, entertainment, books, and so on – just define categories that are meaningful for you and put every expense into one of those categories. You might have to go through longer receipts – like your grocery receipt or a receipt from Target – one item at a time.

When you’re done, total up those categories.

You might be shocked as to where your money is going – or you might be expecting it. In either case, you have real data upon which to make decisions about how to get better with your spending going forward. Maybe you really do need to cut back on eating out. Maybe you’re spending way more on gas than you thought, so what can you do about that?

That’s an example of the “quantified life” with a very finance-oriented application.

Naturally, you can apply this idea to other areas of your life. Use a calorie counting app to record every single calorie you ingest for a month. Use a Fitbit to track every step that you take. Use a GPS app on your phone to keep track of your running habits. You get the idea.

There are a number of benefits to keeping track of information in the areas of your life that you’re concerned about.

First, the idea that you’re tracking said information is often enough to nudge you to better behavior. During the periods when I’ve been serious about tracking my expenses, I did not want to write down silly expenses in that notebook that I would just regret at the end of the month. It was much easier to be frivolous with my money if I wasn’t really thinking about it. If I have to stop and think for long enough to write down the expense, I’m less likely to actually engage in frivolous spending.

Second, the data you’ve produced enables you to make better decisions about how you should be changing your behavior and how to move forward. Having a clear picture of exactly how you spend your money makes it much easier to identify exactly where you should be cutting back. Having a clear picture of your exercise patterns helps you figure out when and where and what kind of exercise is most effective for you. Basically, data reveals what the most effective strategies are for your specific situation.

Third, data over time lets you see that you’re actually changing things, even if it’s not showing up like you expected. Data lets you set goals that are oriented around the process rather than the results, and that’s important because results don’t always show up right when you expect them, especially in the short term. There are almost always factors involved that you didn’t consider that can alter the results. What really matters is that you have a process for getting those results and are sticking to that process, and that’s what keeping track of your behavioral data can show you.

Finally, data is more reliable than hunches. You might have a gut feeling abut what changes you need to make to be truly effective, but actually looking at the real numbers will show you the reality of what’s actually happening. Sometimes your hunches will like up with the data and that’s great, but when they’re not in alignment, you can realize that perhaps your gut instinct isn’t guiding you in the right direction, or perhaps that the data and your gut feelings are both telling you something important.

How can you start applying quantification easily in your financial life? As I noted earlier, writing down every expense as you go along is a very effective way of accumulating data on your spending. It’s something that I do for short periods – I’ll do a “30 day challenge” at least once a year to track that information.

But it’s not the only way.

There are a number of apps that take care of much of the bookkeeping for you. I want to highlight the three that I consider to be the best in the pack.

Mint is an obvious starting point. It’s a smartphone app that aggregates financial data from your bank accounts and credit cards to give you a realistic picture of your spending without having to lift a finger. However, it lacks in two areas. First, it doesn’t provide that “pushback” against bad choices that manual recording of your spending can provide, as noted earlier. Second, it doesn’t do a good job of breaking down purchases from retailers into appropriate categories – you have to identify what kind of purchase you’re actually making at Amazon, for example. Mint has a lot of nice features and it’s free, but the software is subsidized by ad support and some degree of sponsored content, which I find frustrating. In terms of features per dollar, though, it’s the best option out there.

You Need a Budget is another great smartphone option that nicely integrates your spending habits into a clear picture of your monthly budget. It’s focused around making sure that every dollar that goes through your life has a purpose and really hammers that message home. I consider it a more effective tool than Mint; however, it has the drawback of being subscription based software, whereas Mint is free. It still somewhat lacks in terms of actually tracking your expenses, as noted with Mint, but I find that YNAB does a better job of nudging you toward good behavior anyway. This is the best option, in my opinion, but I do not like the subscription model.

That’s when we turn to the third option, PocketGuard. PocketGuard is a simpler view of your financial state than the other three, but it’s also free and it doesn’t bug you with “offers.” It just does its job without a ton of extra bells and whistles, and thus overall it’s my favorite choice of the three.

In summary, YNAB is the best of the three but it’s the most expensive by far, Mint has the most bang for the buck but has a lot of seemingly sponsored content mixed in, and PocketGuard is more basic in terms of features but shows you what you need to know.

For me, though, there are two benefits to simply jotting down expenses in a notebook that keep me sticking with that. One, the fact that I’m mindful of each expense as I’m writing it down helps me make better choices. Two, I’m not sharing my financial data with anyone but myself, as it’s all in my pocket notebook in my own weird shorthand. Yes, figuring out what it all means can take some time at the end of the month, but I usually learn a lot from that process.

In the end, the message is simple: finding some way to track your spending in detail and then looking at what that data means in terms of you making better choices going forward is a valuable thing to be doing. There are tools that automate a lot of this, but I personally find value in keeping track of each expense myself.

Give it a try. I encourage you to spend August doing a 30 day challenge where you track every single dime you spend in whatever way you’re comfortable with, then sitting down with that data and looking at the patterns. How much did you spend eating out? How much did you spend on your hobbies? Then, ask yourself whether you’re happy with those numbers or whether it’s a sign that you need to make some changes.

Good luck!