Tracking is the First Step
If you don’t know where your money is going, you don’t know how to make it go where you want. Simply having a budget or tracking your finances the right way isn’t going to change your behavior.
In Fall 2016, a study was published about activity trackers (ie: FitBits) and weight loss. It was a randomized controlled trial (the best kind of study there is!). 471 participants spent 6 months on a low calorie diet, group counseling, and physical fitness prescriptions. After 6 months, the group was randomized into 2 groups: “Self-monitoring” (ie: “you’re on your own, but here’s a website where you can enter your data”) or “Activity Tracker” (ie: “here’s a FitBit. It will capture your data.”) After 2 years (!), they all weighed in. Both groups had better levels of fitness, but the group without the FitBit lost significantly more weight!
You read that right… the ones that had the fancy trackers lost LESS weight than those that didn’t have them!
Tracking Doesn’t Change Behavior
When you remember to upload your FitBit data every day, you feel like you’re making a difference. When you log in to your computer to check your balances, you feel like you’re managing your finances. Doing that one thing makes you complacent. You think: “Hey, a year ago, I didn’t know where any of my money was or how much I even had!” and today you can spout off your retirement account balances, your mortgage balance, and your total net worth.
Yes, it’s important to track. Data helps us make better decisions. But we can’t stop with just tracking. Behavior needs to change.
How to Actually Make Changes:
- Start Tracking – It’s still the first step! I’ve explained what I think you need to set up a perfect tracking system. Start!
- Pick one balance that bothers you – I think this will change frequently as your financial journey continues, but pick one balance that bugs you the most RIGHT NOW. For me, that’s our mortgage. I hate it. I hate seeing it when I track my numbers. I hate seeing how much I am paying the bank. I Hate it.
- Set a Goal – I’m big on goals (both financial and non-financial). Set a goal for that one account. What number would make you feel better about it? Don’t go all crazy and set goals that are a few years out… okay… do that, but for this specific moment, set a goal you think you can accomplish in one year. Make it a lofty goal (not easy), but not a crazy goal.
- Start Calculating – How much money does that goal require that you aren’t currently allocating to it? We need specific numbers here. If we want to decrease our mortgage balance to below $30,000 by the end of this year, that means we need $23,000. Now break that into monthly needs – We need $1,917 per month to hit that goal (our mortgage payment covers some of that principle).
- Make a Plan – In order to make progress, something needs to change. You can’t keep doing the same thing and expect different results*. What financial changes are you going to make to change? Are you going to allocate your “eating out” budget to your debt instead? Are you going to start a side hustle? Are you going to be more committed to bringing lunch to work?
- Get to Work – Keep tracking and put your plan into action. Only THEN will you start to see results!
*Did Einstein really define Insanity as this? Because that’s what the internet told me.
Mad Money Monster
Yes! I have already made my lofty goal of paying off our rental property this year. First though, I need to eliminate the one car payment we still have. After that, it’s all-in on the rental. Like you, I hate mortgage debt, regardless if leveraging rental mortgage is the “smart” way or not. I want it gone. I’d rather have some equity in he property that I can still easily access without selling, btw, than having that debt over my head. So our one goal is to eliminate it, or get as close as we possibly can. Unfortunately, Mr. MMM’s income is variable, so it all kinda depends on what he can make this year. Ugh. Wish us luck!
Interesting study with the FitBit users. I never would’ve guessed that outcome!
Mrs. Mad Money Monster
MaggieBanks
My income is also quite variable… I’m working on getting a month ahead on finances so we can better allocate monthly funds toward goals.
Mr. SSC
You’re right, tracking without a plan or making changes does nothing to help your situation with money, weight, or anything in life. If you don’t care, start there. First you have to care and want to change or nothing will ever change.
My recent post was about how I don’t track my allowance but need to start because it’s out of control, lol. I track it in the sense of every month I review my statement and say, “yep, I spent a lot last month” and repeat… Chase does a year end review for you where they categorize it all and man, I was shocked at how much went where.
This year I’m trying to implement changes that will help curb spending and make me aware of it like unsubscribing to almost all solicitor emails, even occasionally post about it so I’m held accountable, yipe!!
I haven’t set a goal yet like reduce allowance spending by 1/3 or something, but maybe I should. Hmmm, so many ways to keep me on track with allowance spending. The biggest is like you mentioned, accountability, tracking and action.
I read that fitbit study and said, “Yep, that sounds about right”. Both companies I’ve worked for implement activity tracking for cash and I’m amazed the people that don’t take advantage of it. I’ve gotten ~$200-$250 each year just with minor participation. Not much weight lost though and I’ve carried one of those stupid things around for almost 8 yrs now… All the weight loss comes thru other actions, not monitoring my Fitbit.
MaggieBanks
OH man…. I WISH my company paid…actually, they do, but since I’m a contractor, I can’t be part of the program. Maybe I’d actually walk. 🙂 I don’t throw away money!
Miss Mazuma
That FitBit study is exactly the opposite of what I would assume. I am guessing people felt they were being more active so it gave them carte blanche to eat like little piggies! 😉
Tracking definitely helped me to refine my spending. It didn’t change my behaviors (I have always been a saver) but it did open my eyes to some of the absurd spending decisions I was making (Whole Foods!). One year in and I feel much more on track – like my spending on the outside matches my goals on the inside. All is simpatico!
MaggieBanks
Totally! I’ve noticed our spending is the same or more than when we first started tracking, but it’s much more mindful and satisfying. Our money is going to better things and improving our lives! 🙂
Harmony Smith (@CMK_Harmony)
Thanks for confirming that those fit bits are stupid – I’ve been thinking that for a while now!
Good points about setting realistic and measurable goals. Regular reevaluation is also important. We’re in the midst of moving some of our debt around, including refinancing our rental property mortgage, so we will need to look at our goals again in a few months. The old goals may not make as much sense after big changes.
MaggieBanks
Ha ha ha. I don’t think Fitbits are Stupid… just not the whole story. 🙂
Chris @ KeepThrifty
Great, thought-provoking article, Maggie!
I think one of the big missing pieces of data in that study is the difference between *active* tracking and *passive* tracking.
When you use a Fitbit or an automated tracking system like Personal Capital, there’s a time disjoint between performing the behavior and measuring it. That disjoint makes it hard to take full advantage of the power of tracking – affecting behaviors in the moment.
For weight loss, a great counter example is calorie counting in a food diary. You’re much less likely to eat the cookie if you know you have to write the 350 calories down. If a silent drone followed you around and you just saw your calorie total at the end of the day it wouldn’t be as effective.
That’s why I think the *best* way to track your finances is with *active* tracking – where you have to manually enter everything. There’s a deterrent effect from knowing you have to log that indulgent purchase you didn’t really need.
Chris @ KeepThrifty
Clarifying my wording – the study identified the difference, but didn’t really clarify *why*. Based on the reasoning above, I’m actually not to surprised by the result!
MaggieBanks
This is an interesting distinction you make and I semi-agree with you. However, I’ve had the opposite effect. When I was entering everything manually, I Had the false impression that I was DOING something for my finances. It felt hard and productive. But when I switched to Personal Capital, I no longer felt like I was doing anything. It did it all for me, so I had to start focusing on actually doing things in other areas to make impacts on my finances so I felt like I was moving forward. But I can see how some people would consider passively tracking *something* as well.
Chris @ KeepThrifty
Interesting take! This definitely seems like there’s no one-size that fits all 🙂 I’m guessing personality differences might make people more effective with one approach or another. Have you taken Myers-Briggs? I’m an INTP – maybe there’s something in there? 🙂
MaggieBanks
I’m an ENTP, so not too different. 🙂
Claudia @ Two Cup House
Agreed. Once we had our debts in a big pile, it was clear which debts bothered us the most and that’s roughly the start of the plan we used to get out of the mess. There’s something to be said for a lofty goal– it forced us to come up with a plan quickly.
MaggieBanks
When we don’t assess our situation realistically, we don’t know HOW to tackle it. 🙂