Many people don’t realize how much money they actually spend each month until they begin to document everything. If you’ve not been tracking your expenses meticulously, you might be surprised at how much the seemingly small purchases can add up. By tracking your expenses, you can easily identify poor spending habits early before they turn into significant debt problems.
Wise consumers tend to have certain similarities in terms of personal financial management – they precisely track all their expenses and regularly update their financial goals. It’s always a good idea to set up a monthly budget to track both income and expenses. With that information, you can adjust your spending habits and make more informed purchasing decisions. Over time, proper expense tracking will help you save more money and reduce debt. Here are some ways you can start tracking your expenses.
Check Your Account Statements Regularly
Pinpoint your spending habits by looking at all your accounts, including checking accounts and all the credit cards you hold. Examine your transaction history and see which of your accounts you frequently draw money from. Personal finance experts recommend tracking how much money you have coming into your bank account each month and how much you are spending.
One approach is to carry a notebook and pen with you and write down what you spend your money on. Logging your spending every time can help you to be more aware of how you spend money and may encourage you to think critically about each purchase you make.
Use an Automated Expense Tracking App
If a notebook and a pen are too cumbersome to carry around, consider a mobile app that allows you to enter transactions from your phone in real-time. Budgeting apps such as “Mint” and “You Need a Budget” let you determine how much you can spend each month, depending on how much you earn. These apps can help you pay attention to what you spend money on and stick to your spending plan.
Some apps cost money, but depending on their features, they might be worth it. Some apps may offer investment tools or guidance from live support staff. Some of the best budgeting and expense tracking apps automatically do all the work for you, logging and categorizing your purchases in real-time.
Categorize Your Expenses
Understanding where your money goes is key when learning to manage your expenses. Some credit cards and expense tracking apps automatically categorize what you spend on your purchases into categories like groceries, utilities, and entertainment. When you organize your monthly expenses into categories, you’ll have a better idea of how your lifestyle aligns with your budget. Upon examining these categories, you might realize that certain impulse buys are costing you more money than you thought. You may even find that you’re paying for recurring expenses that you could do without.
Generally speaking, you will spend money on both fixed and variable expenses. Fixed expenses, which are things you can’t easily control, are less flexible than variable expenses. They include things like your mortgage or rent, utilities, insurance, and debt payments. In contrast, you usually have some room to adjust spending on variables like clothing, entertainment, or traveling expenses.
Categorizing your expenses, especially when linked to automatically feed from your financial accounts, makes it easier to understand and prioritize your purchases. It helps you think about your entire finances from start to finish, not just the transactions that you’re most conscious of.
How you spend your money is totally up to you, but it helps to have a plan in place to manage and track your spending. Some people prefer to record each transaction manually, while others prefer using an app that syncs with their bank accounts and tracks their purchases automatically. Whatever route you choose, be sure you regularly monitor your spending and evaluate your financial situation as you go. As you track your expenses, be prepared to adjust your spending. Overall, tracking your expenses can help you develop a plan for your ideal financial future.