If I could close my eyes and make one change in everyone’s finances I know what it would be. It wouldn’t be to have everyone pay off their debt. It wouldn’t even be to make everyone start saving for their future retirements. Although those would both be awesome.
It would be to have everyone start tracking their spending.
Why would I choose this one act over paying off debt and saving ? Because if people actually knew where they were spending their money they would be so surprised that they would start paying off debt and saving on their own, without me having to wish for it. It’s so simple yet so powerful.
Tracking your spending is the most important thing you can do when it comes to personal finance.
Related: 101 Easy Ways To Save Money In 2019
Why Track Your Spending?
Every financial tip, trick, and secret starts with first tracking your spending. Yet it’s also the most time consuming and tedious part of your money. No one likes it, not even me. For a lot of people, this is the biggest stumbling block to getting your finances in order.
When you actually see how much those lunches out at work are costing you it might motivate you to make a switch. When you realize how much you paying in debt payments every month you might decide those credit cards need to go. You might do some figuring and decide that a brown bag lunch twice week is worth it if you use the savings to pay off your debt.
I ask all my clients to track their spending. Few take the time to do it. Maybe it seems like a tedious task. Maybe they don’t understand it’s power. Maybe they are afraid of what they will find. I don’t know. But those that actually do it are always amazed. Never once have I had a client actually track their spending and then complain about the process. Every single person who does it makes positive financial changes between our meetings.
It makes them feel powerful and in control of their money. Isn’t that what we all want? To feel like we control our money instead of the other way around. Tracking what you spending will give you that control.
How To Track Your Spending
How you go about tracking your spending is a personal choice.
It has to fit in with your life and your personality. I personally use a spreadsheet and receipts. I’m a dork so that’s what I like. However, others like to go a little more hands off and use services like Mint.com.
I signed up for Mint awhile back just to check it out and I was very impressed. I really wanted it to work for us but in the end we decided to stick with our spreadsheet. I can see how it could work for just about everyone though. It downloads all of your transactions from you checking accounts and/or credit card accounts so you can have them all in one place. It then categorizes them all for you. If you despise collecting receipts and don’t care if your spending is perfectly allotted to specific categories then just leave the default selections alone. Mint still gives you a great overview of your budget. (I love pie charts!).
However, if you want a little more detail you can change the categories yourself. You can even put a single transaction into more than one category. For example; if you spent $50 and Walmart but $20 of it was groceries and $30 of it was clothing, you can specify this. Love it!
But no matter how you go about it you have to spend some time on it every day. If not every day then a few times a week, because you forget. I can’t tell you how many times my husband has asked me “What did you spend $30 on at Target yesterday?” and I can’t remember. I might be able to remember one thing, but not everything. Even when I have the receipt in front of me, what does “SMK STBY” mean? (Strawberry Smuckers) You have to take the time at the end of each day and record your spending.
You also need some kind of system to make sure you didn’t miss anything, or record it twice.
Again, Mint.com is pretty good about this. If you only use your debit or credit card for spending then you can’t really miss anything. Mint picks it up automatically. If you get paid in cash or want to track your cash spending you can add transactions manually. If you use a spreadsheet, like me, you will need some way of keeping your receipts organized. You could mark the receipt when you track it, or put it in a special place once it’s been processed. This is what we do. We have a spot where we put receipts that need to be entered, and then once they are entered they go into an envelope for that month.
You also need a system of how to record your cash. If you pull $20 out of the ATM do you record the withdrawal or the spending? You have to decide ahead of time because if you record the withdrawal and then also record the spending you have recorded that same $20 twice.
Only once you know where your money is going can you begin to make changes.
How do you track your spending?