Tracking your expenses is an important part of creating a budget, paying off debt, and getting your finances on track. Even if you feel like you have a handle on your finances, tracking your expenses a couple times a year will confirm (or maybe disprove) your theory. There are several ways you can track your spending, both online and office.
If you like to do things online, you can use an online service like Mint.com to track your spending. Or, you can purchase software for your computer, e.g. Quicken, to keep up with what you’re spending. If you have spreadsheet software like Microsoft Excel, you can create your spreadsheet for recording your spending. About.com Financial Software does an excellent job of covering these types of personal finance software. Here, I’ll talk about how to track your spending the old fashioned way, using pen and paper.
The benefit to keeping track of your spending the paper and pen way is that you don’t have to learn how to use new software. You can take paper with you wherever you go and write expenses down as you make purchases. Or, you can save all your receipts and write record your expenses at the end of the day.
Use the Free Expense Tracking Worksheet
To get started, download and print the Expense Tracking Worksheet (Color | Black & White). All your expenses won’t fit on a single page, so print several. The worksheet makes things easier, but you don’t necessarily need it. You can do the same thing with regular lined paper. Just make sure you create the same columns – date, amount, payment type, and category. Here are some sample categories you might use:
- Housing
- Food/Groceries
- Dining Out
- Entertainment
- Utilities
- Insurance
- Clothing
- Savings
- Health
- Auto/Transportation
- Communication
- Debt
- Miscellaneous
Add Up What You’ve Spent This Month
Use the Monthly Spending Totals worksheet to list the totals for each category in the month you track. Be consistent with your category labeling to make it easier to total your spending later. Between 10-15 categories is typically good. Too few or too many categories makes it hard to analyze your spending.
Key Takeaways From Your Expense Tracking Exercise
After just a month of tracking your spending, you should be able to make better decisions and take more effective actions with your finances. For example, you can use the spending totals to create a new budget rather than starting from scratch. If you have a budget that hasn’t been working, check your spending against your budget. You may find that you under-budgeted in a certain area.
One of the biggest takeaways from tracking your spending is finding areas that you can cut back. Many people don’t realize how much they spend in certain categories so the expense tracking exercise puts things into perspective. You may see that you’re spending more at the grocery store than you budgeted for – perhaps you can stick to a list, avoid impulsive buys, and take just enough cash with you.
If you’ve done this exercise to figure out how you can get more money to pay off debt, pick a few discretionary categories to reduce by an amount or percentage. Then, allocate that amount directly toward your debt. For example, you might decide to reduce your entertainment expenses by $50. You can then reroute that money to a credit card balance.
The expense tracking exercise shouldn't be a one-time thing. Revisit your spending every few months, especially if you notice your income isn’t going as far as you expected. If you think you'll track your spending on a more regular basis, a personal finance software, especially one that downloads transaction data from your bank, will make the task easier.
