Budgeting is the best way to ensure financial responsibility. Without a budget, we live paycheck to paycheck, always playing catchup with our expenses and debts. With a budget, we’re free and empowered. We can get debt-free, set money aside for rainy days, plan for retirement, and have money to spend on the things we really want, like an anniversary trip to Hawaii.
However, budgeting is a bigger challenge than it sounds for most of us. Without proper planning, it’s harder than ever to stick to a goal. That’s why it’s essential to start by tracking your expenses.
Advantages of Tracking Spending
- It helps you to really take stock of the way that you handle money. How much is spent on necessities? How much is spent on reasonable expenses? How much is spent on completely unnecessary costs?
- It gives you a baseline so that you can make reasonable estimates when you budget.
- Tracking expenses helps you see which costs are flexible and which aren’t so if you need to cut back you know where.
- It makes you consciously and daily think about your money habits, which is the first step to changing them.
We Know It’s Not Always Easy
This is your opportunity to take a good hard look at your habits. Most of us let money sink through our fingers like sand, without even bothering to take stock. And when we do track it, it can be discouraging to learn how out of control things can get. We can’t help dwelling on how hard it will be to give up certain things, like eating out often, buying a new outfit when the fall line comes out, and updating our favorite technology.
Instead of thinking about the things you’ll have to give up, think about what you’ll gain: stability and peace of mind that comes from having savings, less stress from unexpected expenses, the prosperity that comes from watching your money grow through smart habits, or the ability to help your kids and grandkids with their education or business ventures.
How to Track Expenses
- Write down your hard costs (including rent/housing payments, insurance, loan or debt payments, car payments, utilities and childcare costs).
- Track out-of-pocket expenses for a week, and take stock. Then do another week and see if they’re roughly the same. This includes groceries, gas, random shopping, snacks, entertainment, whatever.
Tips for Being Effective
- Keep a notebook handy (preferably in your wallet) and write down every single expenditure you make.
- Download an app. There are lots of free ones that help you track your spending.
- See what kind of budgeting and reporting services your online banking service has.
- Turn off any automatic, or one-click shopping that you have set up on your internet browser.
- Put reminders on all your expenditure points. This might mean a sticker on your credit card, one on your wallet, and one on your computer, at the bottom right of your screen, close to any “confirm purchase” buttons.
- Keep all of your receipts and put them in a special box at the end of each day.
- Use software like Quickbooks, or even a simple Excel sheet in order to analyze your costs.