While tracking expenses may seem like a hassle or a chore, it’s still nevertheless essential to maintaining sound financial health. Without tracking your expenses, you could be unknowingly draining your money into things of little significance.
Today, keeping track of expenses could not be easier. With the vast array of budgeting tools and apps, virtually anyone can keep track of expenses and income.
In this article, we’ll go through the reasons why you should track your expenses. We’ll also mention various ways on how to track expenses and the best ways to document your progress.
Why track your expenses?
Keeping track of expenses is a good idea, no matter where you are on your financial journey. Whether you’re young or old, financially stable or looking to get out of debt, keeping track of expenses will help you reach your financial goals much easier.
Here we list the top reasons why you should track your spending:
Gives you an idea of how much you’re spending
There is no way to know how much you’re spending without some sort of tracking. Being unaware of how much you’re spending each month can promote frivolous spending habits.
Tracking gives you an idea of how much you’re spending versus how much income you’re bringing in. The goal is obviously to ensure your monthly income outweighs your monthly expenses.
Gives you an idea of where you’re spending
Probably just as important as how much you’re spending is understanding where you’re spending your money. By tracking where your money goes each month, you can determine expenses that are truly necessary and those that aren’t.
For example, if you notice a good chunk of your money goes to buying coffee every single day, you can then plan to save by making coffee at home. Likewise, recurring fees, such as cable TV can add up over time. If you’re not even watching the majority of the channels, it might be wise to cut the cord to save some money.
Guards you against impulse spending
Continually tracking your spending gives you an acute awareness of how you’re spending your money. This awareness will help you think twice the next time you want to drop money frivolously on items you don’t really need.
Helps you reach your financial goals
With a big picture view of your financial situation, you’ll be able to better plan for your financial goals. You can adjust your spending habits depending on what your financial goals are. This is simply not possible if you’re not tracking your expenses.
If you’re regularly tracking what you’re spending, it’ll be easier to spot any irregularities in your credit or debit card statements. Unauthorized charges can come in small but frequent sums. Regular surveillance of your expenses can help you prevent this all too common fraudulent occurrence.
Ways to track your expenses
Today, you are no longer confined to the traditional methods of pencil and paper when tracking your expenses. Even spreadsheets, in 2020, can seem old-fashioned to some. Ultimately, the best way to track household expenses will depend on each person.
Below we list some of the best ways on how to track spending.
Spending apps are arguably one of the most convenient methods of tracking your expenses. By utilizing an app as your monthly expense tracker, you can set goals, reminders, and easily categorize your expenses.
Certain apps allow you to sync with your bank account. Syncing with your bank account cuts down the time-consuming efforts of manually recording your expenses. You can also sync with your partner or spouse’s device, consolidating the tracking into one location.
Spreadsheets can be an extremely powerful way to track your expenses. The ability to customize and automate your spreadsheet to your particular situation can be useful. For those who are not as “Excel-savvy,” they can take comfort in the fact that there are countless numbers of templates available for tracking expenses.
Data entry must be consistently up to date if you are to go the spreadsheet route. Alternatively, you can download credit card or bank statements in a spreadsheet format at the end of each reporting period.
3. Envelope Method
This ingenious method forces you to allocate cash into categorized envelopes. Once the money runs out, you’ll know you’ve run out of budget for the particular category.
So, for example, you budget $50 in coffee for a particular month. The $50 is placed in a specific envelope for coffee. Each time you head out to the coffee shop, you’ll draw cash out from this envelope until it runs out. Once you’ve run out of money, you’ll know you’ve depleted your monthly coffee budget.
This method might not be practical for larger payments (i.e., utility, mortgage, car bills, etc.), but would work for more frivolous categories like coffee or even entertainment.
4. Pen and Paper
The tried and tested method of pen and paper can help you track your daily expenses. The main advantage of this method is it’s straight forward. You’re fully in control of how and when you track your expenses.
By keeping a physical log of your spending habits, you don’t need to rely on any technology. Again, for this method to be effective, you must constantly maintain your spending data.
Make a plan and record your progress
Tracking expenses does not happen by itself. It requires a proactive approach and intentional planning.
The best way to track expenses is to formulate a plan and record your progress. Here are the steps to keeping track of expenses.
1. Analyze your spending habits
Gather your previous bank account and credit card statements. Check to see how much money is leaving and entering your accounts. Are you in the black or red each month? How are you spending your money?
Before you do anything, you first need to understand where you’re at in regards to your spending habits
Now that you have a basic understanding of your spending habits take time to categorize your spending. Your categories can be mortgage payments, car payments, food/groceries, entertainment, dining out, etc.
3. Allocate budget
Allot a certain budget for each category. When determining a budget, review your present spending habits (Step 1) and consider what your financial goals are.
Certain expenses are fixed and cannot be changed. Examples of fixed expenses can include utility bills or loan payments. A variable expense is where you can have a bit of latitude. Things like clothing, entertainment, and food, for example, are considered variable expenses.
4. Record progress
Now that you have a budget and plan in place, it is time to record your progress. Recording your progress can take various forms, as discussed above. Whether it’s pen and paper, apps, or a spreadsheet, ensure you are regularly monitoring your progress.
Tracking expenses can only be as effective as the spending data you input. It doesn’t matter if it’s done manually or automatically, don’t neglect to record your progress accurately.
Tips for keeping track of expenses
Below are some helpful tips to help you keep track of your expenses:
- Set realistic goals
There’s nothing more disappointing than to completely flop on your goals. Set a budget for your categories that is challenging, but at the same time, realistic.
For example, if you’re accustomed to dining out four times a week, aim to dine out only twice. Over time, gradually decrease this to once a week, and then maybe once every two weeks.
- Be honest
You’re doing yourself a disfavor if you’re not recording your progress honestly. Even if you do go over budget, make a note of it.
At the end of the day, you want an honest assessment of how you’re doing. Only then can you adjust and improve for the next month.
- Find accountability
Doing anything by yourself is not easy. Having somebody to hold you accountable will help keep your motivation up in attaining your financial goals. If you have a spouse or a loved one you trust, bring them along in your journey.
- Periodically check your statements
It can be tempting to glance at your bank account or credit card statement only at the end of the month. Instead, take some time to periodically check your statements to see how you’re progressing.
It’s much easier to hit your spending goals by checking in frequently rather than waiting for long stretches of time.
- Set challenges
Set small challenges to motivate yourself to save. Setting smaller goals within your larger goals can be more engaging in tracking your expenses.
For example, if you’ve set a $500 budget on groceries for the month, you might want to challenge yourself for one week to purchase only food items on sale.
Learning how to keep track of household expenses is simple with a bit of planning and discipline. Whether you need tips on tracking expenses, eliminating debt, or meeting your financial goals, we’ll work together to find the right solution for you!
CreditAssociates has been in the business of relieving tens of millions of dollars in debt for our clients. If you’re looking for financial help, contact us for a free consultation.