Can you find 5 minutes a day to make a remarkable difference with your money?
That’s all the time this one simple task will take, and it will radically change your financial future!
Yes, I’m serious about the 5 minute part! This one little thing will give you so much more insight into your spending habits as well as allow you to make better decisions with your money.
Ready for it? It’s the simple habit of tracking your expenses.
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Is tracking expenses really that important?
Well, let’s start with what happens when you don’t track your expenses.
As most money lessons are learned, my husband and I figured out the hard way why expense tracking made such a big difference with our money.
We were married with three years of college left to go, and we definitely had to pinch pennies during those years. I watched every penny like a hawk (aka tracked our expenses closely), and we even saved money some months, despite our meager income.
A few months after graduation and landing awesome jobs, we became a lot more lax with our money.
We basically quit paying attention. Our income was larger than ever before, so we got lazy and quit tracking at all for a couple months. It was very different from those penny pinching days!
The regrets from not paying attention to our money…
Well, imagine my surprise when I reviewed our bank account to discover we had spent $1200 in one month on food!! That was just for the two of us and on food alone! And this was back in 2008, when food was much less expensive!
We were buying groceries regularly, but then we weren’t using them. We would just go out to eat instead, and most of the groceries would get thrown out.
It was so wasteful, and super embarrassing that I, a self-proclaimed budget nerd, had no idea our budget was blown by hundreds of dollars over those last couple months! 😉
That was definitely our wake-up call. We realized that no matter how much money we made, we always needed to know where the money was going.
We had dreams for our future, and we certainly didn’t want those dreams to literally be eaten up.
***By the way, are you tired of getting personal finance advice from those who are naturally organized? Grab the guide 3 Things NOT To Do With Your Money and start the 5-Day Challenge today! It will lead you away from financial overwhelm, help you get organized, and most importantly, move past procrastination when it comes to managing your money!***
What does it mean to track expenses?
When tracking expenses, all you do is keep a running record of every expense and every transaction that takes place. This includes anything you spend in cash, on your debit card, on your credit card, in any bank account, Venmo, PayPal, Amazon, any checks you write…you get the idea!
The key is to begin to categorize each expense so you can see exactly what your money is going toward. For example, any groceries that we bought would be would be categorized as “groceries”. Any restaurants — or even fast food places — can be categorized as “eating out.” Any clothing purchases can be categorized individually for each person in the household. I have a clothing category in our budget, and my husband has one as well. Decide on as little or as many spending categories as you’d like.
The main point of tracking expenses is so you can see what you are actually spending your money on and get a clear picture of your overall money management.
In our primarily digital age now, money has become less real. You make money and spend it but never actually see it. Tracking expenses makes your money more real.
How do you get back on track with your money after you’ve veered off course?
In our situation that took place soon after college, the solution to managing our money better was simple.
We needed to track our expenses again.
Instead of waiting a month or two and then going back to review what we had spent, we needed to be proactive.
It’s so important to keep up with your spending on a very regular basis.
Tracking expenses at least weekly is effective for many money savvy people. But if you really want to get serious, then daily is best. When you track expenses daily, something is much less likely to sneak up on you. That check you wrote for $200 that hasn’t been cashed yet won’t catch you by surprise!
What benefits are there to tracking expenses?
The biggest benefit is allowing you to zone in on your money habits and behaviors. When you actually see how much money is spent in certain areas of your life (daily Starbucks and/or clothes shopping, anyone?), you realize the overall impact it has on your bank account.
Want to really see the impact of your routine spending? Break out the calculator, then go back over the past month to add up everything in a specific spending category.
Tracking expenses allows you to be proactive rather than reactive. In my opinion, when you’re first starting out to change some of your money habits and work on your overall money picture, tracking daily has the most benefit.
Daily expense tracking also helps you begin to change your behavior when it comes to money. Knowing that you’ll be writing a purchase down (or inputting it in a tracking app) provides some accountability and makes you think twice before making a purchase.
What can you use to keep track of your personal expenses?
Pen and paper
To start, you can use good ole pen and paper. This is most effective, especially if you’re just starting the journey to take control of your money. Writing down each expense gives you a huge advantage to take back control of your spending.
For each expense, write out the date, name of place purchased from, amount, and spending category. If you use multiple accounts to spend, it is helpful to add that as well.
Tracking App
Again, tracking expenses with pen and paper is usually most effective and even eye-opening. However, if the rest of your life is almost entirely digital and you can’t stand to use pen and paper, use an app.
There are so many apps to choose from. I personally use EveryDollar. The basic version allows you to track expenses for free! Watch the video at the link below to track expenses using EveryDollar.
Though EveryDollar is technically a budget app, you can start using it first as just an expense tracker! The budgeting aspect of it can wait until later once you’re ready 😉
If you want other app options, this article from Dollar Sprout on tracking expenses gives you a few more, so you can decide on the best spending tracker app for you!
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Spreadsheet
If you already know your way around Excel or Google Sheets, a spreadsheet is great to use as an expense tracking tool as well. We used a spreadsheet for years, and it was very convenient!
Input your spending, assign each transaction to a category, and with some quick formulas, you’ll easily see where and how much of your money is going to each spending category.
All three of the above options are great for tracking expenses. It comes down to what is most convenient to you and what you’ll be most likely to use and stay consistent with.
How do you track credit card spending?
Wondering if credit card spending is tracked the same way as anything else? Yes!
Whether you’re using pen and paper, or manually tracking expenses with an app, your expenses charged to a credit card should be written down or added to your app as a regular expense.
If you’re making payments and not paying the card in full, the payments as well must be added as an expense. (By the way, if that’s the case, GET RID of the card. NOW!)
Many money apps now have the ability to track spending from your checking account/debit card as well as your credit cards. In fact, you should certainly be tracking transactions from both!
How does credit card tracking work when the app links to your bank account?
However, if you use an app that links to your bank account, it works a little differently. Essentially, the amount charged on your credit card will be entered as a regular transaction with the exception that another transaction must be entered to make sure money is allocated to pay the credit card balance.
For example, if you purchase $100 in groceries, then $100 would be tracked under the groceries category. But then, this $100 would also go to another category for you to pay off the credit card. This allows you to “balance” the transaction so that the money is available from your checking account to pay off your credit card each month in full.
Again, if your credit card is not paid in full and on time each month, you need to get rid of it! Any benefits or rewards from having the credit card are eliminated if you are paying interest, paying late fees, or missing payments. Just say “no” to the credit card and “yes” to true financial freedom! You are certainly smarter than that credit card who’s getting more of your hard-earned money than they deserve!
Tracking Expenses —The First Step to Financial Freedom
Once you get the hang of tracking expenses, then you can move forward to true financial freedom by beginning to successfully budget! Join the monthly budget challenge to get started at the end of this month! Or if you think budgeting is too restrictive, learn the ways it actually frees you instead!
I can’t wait to hear what a difference this 5 minute task makes in your life! Now that you realize the benefits of tracking expenses, be sure to stay consistent with it, and you will be well on your way to financial freedom!
Seriously, you will be so surprised at the change in your finances just by building this one simple habit! Let me know how it’s been a game-changer for you and your money!
Heather
