Do you want to learn the best way to track spending? Are you tired of constantly worrying about your bank account balance and not knowing where your money goes?
Learning how to track your expenses is the first step toward financial freedom. Not only will it help you save money and make informed financial decisions, but it can also bring you peace of mind.
By tracking your expenses, you can easily identify where to cut back, allocate your fun money, and ensure that you’re living within your means.
In this blog post, we’ll walk you through the best way to track spending and take control of your finances!
Why tracking expenses is so important?
Tracking expenses is vital because it helps you manage your money better and avoid financial stress. When you don’t track your spending, it’s easy to overspend and end up in debt.
By tracking your expenses, you can identify areas where you’re spending too much and make changes to save money. You can also monitor your bank accounts and cash flow to ensure that you have enough money to cover your monthly expenses.
Moreover, tracking your expenses helps you in money management and achieving your financial goals. With clear insight into your spending habits, you can make informed decisions about where to cut back and where to allocate your resources.
Overall, tracking your expenses is crucial for financial stability, reducing financial stress, and achieving a healthy balance between spending and saving.
Top 10 Ways of expense tracking
Now let’s take a look at the top 10 ways of tracking your expenses:
1. Categorize your expenses
The best way to track spending is to categorize all your expenses. When tracking expenses, it is important to categorize each expense so you can analyze your spending habits. Common categories include
- Food
- Housing
- Transportation
- Entertainment
- Healthcare
- Utilities, etc…
By assigning each expense to a category, you can identify areas where you may be overspending and make necessary changes. For instance, if the majority of your expenses fall within the dining-out category, it may be time to modify your spending habits and try cooking meals at home.
Spreadsheets and personal finance apps can be used to categorize expenses, and some apps even automatically assign categories based on the type of expense. If you have the budget, you can also use a paid app that helps you budget and track expenses.
By taking the time to categorize your expenses, you can better understand your spending habits, make informed financial decisions, and work towards your financial goals.
2. Check your bank’s statements
Checking your bank statements frequently is an easy way to track your expenses. Bank statements show all the inflows and outflows from your bank account, making it easy to see where your money is going.
By reviewing your bank statements, you can identify transactions that were not authorized or fraudulent and immediately report them to your bank. Additionally, bank statements can be used to track your monthly expenses and monitor your cash flow.
Many banks offer online banking services that allow you to view your statements and transaction history anytime, anywhere. You can also set up alerts to notify you of any unusual transactions or low account balances.
3. Create a budget
Budgeting is the best way to track spending. Creating a budget is an effective way to track your expenses. A budget is a plan that outlines how you’ll spend your money over a specific timeframe, typically a month. By creating a budget, you can identify your income, expenses, and savings goals, and track your spending in each category.
To create a budget, start by calculating your income and fixed expenses, such as rent, car payments, and utilities. Then, allocate funds for variable expenses, such as food, entertainment, and clothing.
It is important to create a realistic budget, one that accounts for both your necessary expenses and some “fun money” so you are not too strict with yourself.
Once you have created a budget, track and categorize your expenses in each category. You can use a spreadsheet, pen, and paper, or budgeting apps to help you track your spending.
By comparing your actual expenses with your budgeted amounts, you can see where you are doing well and where you need to make changes. Making adjustments will help you stay within your budget, save money, and work towards your financial goals.
4. Follow the 50:30:20 rule
The 50:30:20 rule is a popular budgeting strategy that recommends allocating 50% of your income toward your needs, 30% toward your wants, and 20% toward your savings and debt repayment.
This rule is an excellent way to track your expenses and ensure that you’re living within your means while saving for the future.
To follow the 50:30:20 rule, start by calculating 50% of your income for necessities like rent, utilities, groceries, and other fixed expenses. The 30% portion is for discretionary spending on wants such as dining out, shopping, hobbies, and entertainment.
Finally, allocate 20% of your income towards savings, including debt repayment, an emergency fund, and retirement savings. Once you have figured out your percentages, keep track of your expenses in each category.
5. Use spreadsheets
Using a spreadsheet is a simple and easy way to track your expenses. With just a few clicks, you can create a personalized spreadsheet to monitor your spending habits.
Start by creating columns for the date, description of the expense, category, and amount spent. Then, add any additional columns for notes, vendor, and payment methods.
Record all your expenses in your spreadsheet daily, weekly, or monthly. Categorize your expenses and add them to the appropriate column. You can then use a formula to calculate your total expenses and see how much money you’ve spent in each category.
Spreadsheets allow you to customize your expense tracking by adding charts and graphs to visualize your spending habits over time. They even allow you to set reminders and track your budget.
By regularly tracking expenses on a spreadsheet, you can pinpoint where you need to cut back and where you can afford to allocate more.
6. Record every transaction
Recording every transaction is an essential step in tracking your expenses. It is crucial to keep track of everything you spend, from a small purchase like coffee to significant expenses like rent or mortgage payments.
By recording every transaction, you can get a clear picture of your spending habits.
The key is to record your expenses as soon as they happen. This will help you avoid forgetting to record everyday expenses and ensure that you have an accurate record of all your transactions.
Keep an expense journal or use a spreadsheet, or any other tracking method, and record every transaction detail including the date, description, amount, and category of the expense.
Another tip is to keep your receipts organized in an envelope or a file folder, so you can easily record all the details later. By recording every transaction, you’ll have an accurate record of all your expenses, allowing you to budget, plan better and make informed financial decisions.
7. Use a personal finance app to track expenses
Using a personal finance app is an effortless way to track expenses and manage your finances. These apps help you keep track of your expenses by linking with your bank account or credit card statements.
By using personal finance apps or expense tracker apps, you can easily monitor your account balances, keep track of your cash flow, and identify areas where you can reduce spending. These apps also allow you to set alerts for low account balances, so you can avoid overdrawing your account.
Here is a list of some of the best expense tracker apps:
Personal finance apps typically come with additional features like creating financial goals, tracking net worth, tracking bills and subscriptions, and generating reports to visualize your spending.
Ultimately, using a personal finance app can help you gain better control over your finances and make informed financial decisions.
8. Monitor your credit score
Monitoring your credit score is an important aspect of tracking your personal finances. Although it’s not an obvious expense tracking method, your credit score is affected by your spending and payment habits, making it an indirect indicator of your financial situation.
Your credit score reflects your creditworthiness, which can affect your ability to borrow money, obtain loans or mortgages, and even rent an apartment.
Regularly checking your credit score can help you identify any errors, fraudulent activity, or negative information on your credit report that may affect your score.
There are free credit score monitoring services available online that allow you to check your score frequently without negatively impacting it. Additionally, some checking accounts may offer free credit monitoring services to their customers.
By monitoring your credit score, you can take steps to improve your financial standing and make informed financial decisions.
9. Take advantage of alerts and notifications
Taking advantage of alerts and notifications is an excellent way to stay on top of your expenses.
Many checking and savings accounts offer free alerts and notifications that you can set up to inform you of your savings and checking account activity, including transactions exceeding a set limit, low balances, and daily spending limits.
By enabling alerts, you can receive notifications of any suspicious or unauthorized account activity, allowing you to take prompt action and keep your accounts secure. Additionally, setting up alerts for low balances can prevent you from overdrawing your account and incurring costly fees.
You can also set up alerts for bill due dates to ensure that you don’t miss any payments and avoid late fees. By using alerts and notifications, you can ensure that you stay on top of your finances and avoid costly mistakes.
10. Track spending by cash, debit card, or credit card
By keeping track of how you pay for things, you can better understand where your money is going, which can be useful when making budgeting decisions.
If you prefer to use cash, keep a record of all your transactions in a notebook or spreadsheet. Write down the date, description, and amount of each transaction, and categorize them based on your budget.
For debit and credit card expenses, you can use your account statements to monitor your spending activity. Most banks provide online access to account statements, allowing you to track your spending in real time. Be sure to categorize your expenses based on your budget and spending patterns.
How to develope good spending habits?
So now that we know the importance of tracking your expenses, how can you develop good spending habits?
1. Create an emergency fund
Creating an emergency fund is a critical step toward developing good spending habits. An emergency fund is a pool of money set aside to cover unexpected expenses such as medical bills, home repairs, and car maintenance.
Having an emergency fund can help you avoid going into debt and provide peace of mind in the event of an emergency. It is recommended that you aim to save six months’ worth of living expenses in your emergency fund.
To create an emergency fund, start by setting a savings goal and making regular contributions. You can automate the process by setting up automatic transfers from your checking account to a separate savings account or investing in low-risk investments.
By having an emergency fund, you can avoid the temptation to rely on credit cards or loans to cover unexpected expenses, allowing you to stay on top of your finances and maintain good financial health.
Developing good spending habits and creating an emergency fund go hand-in-hand and can help you achieve your long-term financial goals.
2. Use the envelope system
Using the envelope system is an effective way to develop good spending habits by allocating a fixed amount of cash to each category of expenses. This system requires you to create envelopes for each category of expenses, such as groceries, entertainment, and transportation, and fill them with a predetermined amount of cash each month.
Once you’ve filled your envelopes, you can only spend the cash inside them for that category of expenses. When an envelope is empty, you’re not allowed to spend more money on that category until the next month when you can refill the envelope.
Using the envelope system can help you stay on top of your expenses and avoid overspending, as you can visually see how much money you have left in each envelope. It also encourages you to prioritize your expenses and make conscious decisions about where your money goes.
To start using the envelope system, create envelopes for your necessary expenses, and allocate funds accordingly. You can also create envelopes for discretionary spendings, like entertainment, and limit your spending to the amount in the envelope.
By using the envelope system, you can develop good spending habits by managing your money wisely, living within your means, and saving money over time.
3. Use cash or a debit card instead of a credit card
Using cash or a debit card instead of a credit card is an effective way to develop good spending habits. Credit cards can encourage overspending, as they provide access to credit that may not be immediately available in your checking account.
Additionally, credit cards often come with high-interest rates, making it easy to accrue debt and increase expenses over time.
Using cash or a debit card can help you manage your spending better by setting a limit on what you can spend. When using cash, you have a finite amount of money to spend, which can help you prioritize your expenses and avoid overspending.
Similarly, when using a debit card, you’re spending money that must be readily available in your checking account, preventing you from overspending.
Using cash or a debit card can also help you develop good spending habits by encouraging you to stick to your budget and make conscious decisions about your expenses. It’s harder to overspend when you’re physically handing over cash or checking your balance on a debit card.
4. Reduce unnecessary expenses
Reducing unnecessary expenses is a vital step in developing good spending habits. It’s essential to determine your needs, wants, and priorities to identify expenses that you can cut back on or eliminate altogether.
Reducing your expenses can help you save money, pay off debt, and live within your means.
To reduce unnecessary expenses, evaluate your budget and identify areas where you can cut back. Consider necessary expenses like housing, transportation, and food first before moving on to discretionary expenses like entertainment and shopping.
Creating a budget and tracking your spending can also help identify areas where you’re overspending.
When trying to reduce unnecessary expenses, consider alternative ways of achieving the same result. For example, instead of going out for dinner, have a home-cooked meal. Instead of buying expensive coffee every day, invest in a coffee maker and make your own coffee at home.
Reducing unnecessary expenses requires discipline and commitment, but over time, it will become a habit. It can also help you achieve your long-term financial goals by freeing up money for savings or investments.
5. Automate your savings and investments
Automating your savings and investments is a powerful way to develop good spending habits. When you automate your savings and investments, you prioritize paying yourself first and remove the temptation to spend money that could be saved or invested.
You can set up automatic transfers from your checking account to a savings or investment account each month, ensuring that you’re consistently putting money away. This can help you build an emergency fund, save for a vacation, or invest in your retirement.
Another option is to have your employer set up a direct deposit to your retirement account. This allows you to automate your contributions to your retirement savings and ensure that you’re saving for the future.
Automating your savings and investments is a simple process that can have a significant impact on your financial health. By making it a habit to save and invest regularly, you can achieve your financial goals and develop good spending habits.
Conclusion
So there you have it! The best way to track spending is to be conscious and mindful of your spending habits. It’s important to evaluate your budget regularly and identify areas where you can reduce unnecessary expenses. The goal is to be mindful of your spending and build good habits that will help you reach your financial goals. It might take some time to get into the habit of tracking your spending, but with a bit of hard work and dedication, you can develop good spending habits that will last a lifetime. Good luck!
