Why it Pays to Track Your Spending

By Mike Peterson
In June 16, 2014

You may have read here once or twice how important it is to create and maintain a budget. In fact, budgeting your money is one of the most important steps you can take toward achieving financial stability.

 

But any attempt you make to set a budget will be a waste of time unless you go into it with a realistic picture of your spending habits. You simply can’t plan your spending, debt reduction, savings, or investments until you see how much money is coming in and where it’s going.

 

The process of tracking your spending is similar to journaling the food you eat when you’re trying to lose weight. Until you factor in the calories from that light-night snack or restaurant meal, it’s pretty hard to understand why the pounds aren’t coming off the way you want them to.

 

With money, it’s just as easy to lose sight of the expenditures that are throwing your financial goals off track.

 

It may not sound very exciting, but tracking your money will empower you to start making positive changes – and to avoid financial missteps. The process is very doable, and I have some tips that will help you get started.

 

Choose the right tools for you.
There is no “perfect system” for tracking your money. All sorts of online and software-based systems are available. One of the benefits of these high-tech options
is they can categorize your expenses and, in the case of the online programs, they can automatically link to the activity in your bank accounts.
If these options hold little appeal, you always can write your expenses in a notebook or type them into a basic Word document or spreadsheet. The key is to find a method that you feel comfortable with so you’ll stick with it.

 

Start a receipt collection.
Make sure you get a receipt for every expenditure you make, from that pack of gum and soda you bought on the way to work to your dog’s last visit to the vet. Keep all of the receipts in one place, and make it part of your routine – at least once a week – to enter them in your log.

 

And, on that note . . .

 

Don’t procrastinate.
Try to update your spending log as quickly as possible. If your receipts start to build up, entering them will become more time-consuming and daunting. If you update daily or even every other day, you can get your log done in a few minutes.

 

Pay attention to the little things.
Remember, for this process to work, you need to include all of your spending: nickel-and-dime items, monthly bills, and the unexpected things that come up in life. So not only should you be entering the information from your receipts, you should be tracking every financial transaction you make.

 

Don’t make yourself crazy!
There are a lot of spending categories and sub-categories associated with the high-tech tracking programs – but, unless you really enjoy that level of minutia, you can keep things pretty simple. You can still get a good idea of your spending habits with broad categories like utilities, housing, toiletries, food, transportation, pets and entertainment.

 

Grow or shrink this list based on your life, but remember, the simpler you keep your tracking process the more likely you are to use it.

 

It’s very likely that once you’ve been tracking for a month, you’ll find your actual spending is considerably more than your projected spending. Don’t feel bad. That’s pretty normal. Once you have a firm handle on where your money is going, you can start making wiser, better-informed decisions.

 

Happy tracking!

Mike Peterson

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.