We all have a dream. You might want to buy a home, start a family, or become an entrepreneur. Maybe you have a vision of traveling the world.
Or perhaps you simply want to develop a better system for managing your money and becoming financially independent.
This guide will help you understand why tracking your spending and using the resulting information can help you create a plan to meet those goals.
Why track your spending?
When you track what you spend money on each month, it becomes easier to figure out where there might be room to cut back so that more money remains in the bank.
There are numerous benefits from recording and evaluating your spending behaviors.
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Tracking your spending helps you understand how much money comes in and where it all goes.
If you’re consistently spending more than the amount coming into your bank account, this could signal problems with budgeting. By comparing income and expenses, you’ll see opportunities to stop unnecessary financial leaks, repair damages, and build a better budget.
Recording your spending behaviors highlights your priorities.
When you identify where you’re prioritizing your spending, you can see if your dollars are going to the things you value most. If they’re not, you can work to realign your spending patterns.
Being conscious about how your money is spent will identify wasteful spending.
You can track how much you spend on dining out or impulse purchases and find areas for improvement. You’ll also have a better idea of where to cut back to start saving more money. This will help you create mini challenges so you can make a game out of it.
You can even reward yourself with some of the saved funds!
Tracking your spending helps identify your progress on eliminating debt or saving for a goal.
Simple mathematics dictates that if you spend less than the amount coming into your bank account, more money stays in your pocket.
By finding areas for improvement and implementing a plan, you’ll see continuous progress towards achieving your financial goals.
How to track what you spend
There are several ways to track your spending. Some methods require you to do most of the work, while others pretty much do it for you.
Many people like to record their transactions manually, at least initially, to really understand their spending behaviors. Others prefer letting an app or software do the job.
No matter how you track, the more extended period you do it for, the better the information you’ll get.
Sure, 2-3 weeks can give you a general sense of where your money goes, but when you record your purchases and expenses for 2-3 months or so, you’ll understand your finances a whole lot better.
With the data you acquire from tracking, you can create or improve upon your financial goals and develop the right spending and savings plan (your “budget”) to help you accomplish them.
The most basic option to keep track of every cent you spend is to record your financial transactions in a notebook or any paper system. (We encourage you to spare the trees when possible!)
A step up from that would be to use a Google Sheet or Excel Spreadsheet.
You can track your spending manually by recording every cent that leaves your bank account for anything, whether it’s a bill payment or coffee on the way to work.
You’ll record where you spent money, how much it was for, and when you made the transaction.
Ideal information to record includes the following:
- Category of the expense – food, travel, or clothing
- Description of the item – dinner, monthly groceries, jacket, or Hawaii trip
- Date of the purchase
- Total amount spent
- Bonus points for recording the reason for the purchase
Once you understand your monthly income, expenses, and spending behaviors, you then create a budget.
Budgeting helps ensure your incoming dollars go where you want them to, so you both meet your needs today and save and invest for your future goals.
Manually recording your financial transactions requires not only commitment but also patience and a bit of time to do the tracking yourself.
However, there are ways to make this process more manageable if you don’t feel like doing all that manual data entry any longer than necessary!
There’s an app for that
Utilizing an app can streamline the process of spend tracking and budgeting. There are several apps on the market today, and each app works in slightly different ways.
Still, the core idea is that your income and spending transactions are automatically recorded, making it easy to monitor your budget and even track your progress on savings and investing goals.
Some of our favorite apps for expense and budget tracking include:
Digit: This easy-to-use app tracks and analyzes your income and spending every day. But then it goes the extra mile by analyzing your spending patterns and saving what you can afford to tuck away. This can help you make progress on your financial goals and overall financial health.
Personal Capital: This app is not only easy-to-use, but it’s also free, making it perfect for recording income and expenses. It lets you track your spending trends, budgeting, investments, net worth, and retirement planning. Essentially, this app does anything that will help you track your money and improve upon your financial plan.
Qube Money: Their digital envelope system or “Qubes” lets you see where you’re spending most of your money and prevents you from overspending by only allowing you to spend what you’ve allotted to each Qube. Plus, every month, leftover cash in a Qube is automatically sent to a savings Qube of your choice.
Tiller Money: If you’re into spreadsheets but would like the efficiency of an app, then you’ll want Tiller. But even if you’re new to spreadsheets, you’ll want to give this tool a good look. Newbies and Excel or Google Sheet pros alike can use expertly crafted easy-to-use templates, customize any template, or create a new spreadsheet from scratch. After connecting your financial accounts, importing and customizing your data, Tiller will then automate and sync daily transactions as you go.
The first step to creating an effective budget is to track your spending.
Tracking identifies where your hard-earned money goes. It helps you notice any overspending that’s taking place and identify opportunities where you can save money.
Analyzing your spending and saving behaviors will help you see if you’re using your money in alignment with your values and personal goals.
Once all of your income and expenses are recorded, you can create a budget to tell all the money you have available for saving, investing, and spending where to go so that you reach your financial goals.
Manually tracking might help you get more “in touch” with your financial behaviors, but using an app can help make tracking your spending easier and less time-consuming.
Either way, start tracking your money today so you can reach those financial goals sooner!
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