The Importance of Tracking Spending
One problem a lot of people face is not knowing where their money is going. This is especially true if you’re paying for purchases on a credit card instead of using cash (which is what many people do). When you’re paying with credit, it’s easy to tap or swipe and not even notice how much you’re spending. It’s also very easy to forget exactly where your money has gone. You might know the amount that you spent, but once a few days have passed, there’s a good chance you won’t remember exactly what purchases you made.
Losing track of your spending can make it very easy to overspend and very difficult to stick to a budget. For instance, if you budgeted $400 for entertainment expenses for the month, but you’re not keeping track of where your money is going, how will you know when you’ve reached that amount? A key to budgeting is adjusting things as you go. For example, if you budgeted $400 for entertainment and $800 for groceries, but you ended up spending $875 on groceries, you can reduce your entertainment budget by $75 so that everything still balances. But if you’re not tracking your spending, you won’t have the information you need to make this adjustment.
Another big reason why it’s important to track spending is that it creates better financial awareness. When you take note of how much you spend on food, eating out, clothing, buying coffee, etc. you start to realize where your money is going and this can help you determine if you’re spending money wisely. Tracking your spending can help reduce small purchases that quickly add up (such as buying a takeout coffee every morning, for example) and help you spend your money more effectively.
Tips to Make Tracking Spending Easier
One of the most difficult parts of tracking your spending is not knowing where to start. Here are a few tips that can help.
- Use a way that works for you
- There are many ways to track spending. Some people use an app on their phone designed for tracking while others just jot things down in the notes app. Other people prefer to use a spreadsheet on their computer while some would rather stick with a pen and paper. Whatever method you choose, make sure you pick one that’s convenient for you.
- If you’re the type of person who feels comfortable using a specific app for tracking spending, go for it! Download one that looks good and get to tracking. However, this method isn’t for everyone. A lot of people will feel more comfortable using a spreadsheet or a notebook and that’s perfectly fine.
- If you decide to track spending using a method you find complicated or frustrating, you’ll be a lot more likely to give up. If you pick a method that is comfortable, there’s a much better chance that you’ll stick with it.
- Track as soon as you can
- Whatever method you choose, try to take note of your spending shortly after you make a purchase. If you wait too long, there’s a good chance you’ll forget something and that will make your spending report less accurate.
- Track everything
- Be sure to track every purchase you make, no matter how small it may be. Buying a pack of gum or a bag of chips may not seem like an expense worth tracking, but small costs add up. For example, if you visit the vending machine at work every day and spend a dollar on a drink, that’s $5 a week and $20 a month. Over the course of a year, that’s $240. This is real money that you’ll want to keep track of.
- Review your spending
- Tracking your spending is critical, but so is reviewing your spending on a regular basis. Every month look at what you spent your money on. Do you feel like you spent wisely this month? Is there money that you could have put to better use? Are there any expenses that surprise you?
- Reviewing your spending can help you understand your money habits and make changes to improve your financial life.