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If you want to stay on top of your finances, you need track your expenses. I cannot emphasize this enough. Unless you are a multimillionaire who can spend without any real impact to your bank account, tracking your expenses is a must. Doing so allows you to keep on top of your bills and see where you can save so you can reach your financial goals faster. Since most of us are not multimillionaires (sad face), I put together a little guide to tracking your expenses.
Why Should You Track Your Expenses?
As I mentioned above, you need to track your expenses in order to have a complete financial picture. Not only does tracking your expenses on a, preferably, daily basis keep your accounts from ever going negative, but it also keeps your spending under control. If you are interested in saving for something big like a house or want to use your money to invest, knowing where your money is going and what you have left from each paycheck to save or put towards debt will be a huge help. If you are someone who’s spending gets out of control, tracking daily can be a wake-up call. Instead of getting to the end of the week and being shocked at how much you spent, you will see it building each day and it can, psychologically, keep you from spending more.
What Method Should You Use
There are several things you can use to track your expenses. If you want something simple, you can use a little notebook and a pen. Just write down each transaction after it occurs and review it at the end of the day. Along with this, you could use an app. I have one that I can sync with my husband called, surprise, “Spending Tracker”. It allows me to enter a “salary” which I just use to reflect our budget for the week. Then as the week progresses, we can both enter transactions as they occur, and it will show how much of our budget we have left. While I use this as more of a way to ensure we don’t go over our budget for the week, you could enter your actual paycheck and enter all your transactions. Personally, I find that to be too much and using it as a simple tracker for our food/grocery and incidentals budget works much better for us.
Another way to track is to keep your receipts and enter them into finance software at the end of each day. If you don’t have something like that, you should definitely look into getting some. I use QuickBooks Online which is more geared towards business, but I have set it up to be useful for my household. I have also used Quicken in the past and Mint which is a free online finance software. At the end of each day, I enter all my receipts into my “checkbook” online to see where we stand. Not only does this give me an ongoing picture of my financial situation but it also protects me. When my transactions download from my bank and credit cards each day/week they match up with what I entered. If something doesn’t match, then I know there is an issue that may include fraud and can immediately look into it.
As I said above, I keep all my receipts and enter them into my “checkbook” at the end of the day. Regardless of what method you use, I highly recommend keeping your receipts and either recording them somewhere or holding on to them until they clear. That way you can be sure there is no fraud.
I also recommend holding onto certain receipts. I keep receipts for clothing items for a few weeks or, sometimes, until the return period is over just in case I need to return or exchange the item. I also keep receipts for electronics, furniture, large purchases, etc. These I scan into my computer and keep in a home file by category. These are good to keep for insurance purposes.
Using Categories to Track Your Expenses
I, personally, like to see where most of my money goes at the end of each week or month. To do this, I put my receipts/expenses into categories. Most financial software, and even the simpler trackers, allow you to put your expenses into categories and then see how much went to each category later on. The following is a list of some of the basic categories I recommend:
- Dining/Groceries (I write it just like that and combine all those “food” related expenses.)
- Household (For household consumables and maintenance products like light bulbs, paper towels, etc.)
- Health, Beauty, & Wellness (For items like vitamins, fitness products, toothpaste, makeup, etc.)
- Auto (Gas, maintenance, washing, etc.)
- Clothing & Accessories
All these categories can be broken down further if there is something specific you want to track. For example, I have Household broken down into 3 categories. I have Household: Consumables for toilet paper, paper towels, cleaning supplies, etc. And Household: Maintenance for maintenance materials like yard tools, paint, etc. Finally, I have Household: Other for items that don’t fit in the other two. I have broken down Auto as well. You can pick a category, or make up your own, for just about anything you want to track.
Just don’t make the same mistake I made when I first started doing this and make so many categories that it gets complicated. Otherwise, you will never keep up the task.
As you can see, tracking your expenses is very beneficial and important. To start, get yourself some decent finance software. There are quite a few free options out there like Mint. Or, if you want something more in depth or choose to upgrade later, both Quicken and QuickBooks are very good. Make sure you start keeping your receipts to track and start breaking down your expenses into categories. Finally, along with tracking your expenses, make sure you start tracking your money via a decent budget. I, personally, use my own developed budgeting system which you can view here. It is basic and very easy to use. Feel free to use it or find another one that will be helpful to you. Budgeting and tracking your expenses are key to a great financial picture.