How much did you spend on groceries this month? How much did you spend on eating out?
Can you answer the question definitively? Or are you just guessing?
We talk about sticking to our budgets and about whether or not an expense is in our budget, but according to a 2013 Gallup Poll, only 32 percent of Americans actually have a written budget.
Without that written budget, how do you really know if an expense is in your budget? Just because you can see money in your bank account isn’t enough. You have to look ahead and be prepared for both the expected expenses (like your car insurance) and the unexpected (like a big car repair bill).
And you can’t plan ahead without knowing some critical information. You must know how much you spend.
The Importance of Tracking Your Expenses
One of the most important things you can do with your personal finances is to track your expenses.
Why? Because you can’t plan how to spend your money if you don’t know where your money goes.
Tracking your expenses allows you to see your spending habits. It allows you to notice trends. It allows you to figure out where the money leaks are so that you can make positive changes. It allows you to see your successes so that you can celebrate your personal finance accomplishments.
How to track your expenses
There are many ways to track your expenses. The best way to track your expenses is to find the method that works best for you.
When I first started, I would right down every single penny I spent each month in a notebook. Some people like to write them on index cards.
I’ve used spreadsheets (just do an internet search to find a free expense tracker you like) to track.
I’ve also used computer software and apps. Some folks swear by services like Mint, but I’m personally uncomfortable with linking my personal bank and credit card information to a free online site.
For the past three years, I’ve been using You Need a Budget (YNAB) to track my expenses. It’s not free, but it is a very good value. You buy it once and own it forever. And YNAB will never never, ever ask for account passwords or access to your personal information. YNAB also has a ton of great budgeting reading materials, videos, webinars, and forums, where you can get all the budgeting help you need.
One of the reasons I love YNAB for tracking expenses is that you can use your desktop, your tablet, or your phone to track your expenses, which makes it easy for me to stay on top of tracking.
The best expense tracker is the one you will actually use. So find one you like and make it a habit.
What an expense tracker can show
Now that I’ve been regularly tracking my expenses, I can easily see exactly how much money I’m spending in particular categories.
This allows me to spot changes in expenses. If I see that I’ve been regularly spending $400 a month on groceries instead of the $300 I was budgeting, I know that I need to look at my grocery spending. I will either need to step up my efforts with my couponing, or I will need to adjust my budget to reflect my grocery spending.
If I notice that my car insurance has gotten more expensive, I need to talk with my insurance agent to find out why. Or I may need to shop around for a new insurance company with lower rates.
I can also see where my own personal weaknesses are. When I’m feeling like money is tight, a quick glance at my expenses usually shows where the money has been going. In my case, eating out is a weakness. When I see that restaurant expense is on the rise, then I know I need to eat from my pantry for a while or work on filling my freezer with meals to make eating out less tempting when life is busy.
Start tracking now
Trying to budget without tracking your expenses is a lot like driving in a strange city without a map. You wouldn’t just wander around and hope you figured out where to go, so why would you do that with your money?
Knowing how you spend your money allows you to set a budget so that you can tell your money where to go.
When you can tell your money where to go, you have all the control. There is no, “I don’t know why I’m broke all the time,” because you will be able to look at your expenses and see exactly why you’re broke.
And when you have that knowledge, you can start to take the steps to change your situation.
Start tracking now.
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