Do you really know where all of your money goes each month? I don’t think there is anything more critical to personal financial success. Even people who think they have a good idea of how they spend their money end up being surprised when they carefully track spending and add everything up.
“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” – James Harrington
Most of us know we could do better with our spending, but until we know exactly how much we spend on what, we don’t have enough information to see clearly. If you can’t see your expenditures clearly, you can’t choose to make the most effective changes in your spending habits. Some expenses are overlooked because they happen automatically. Others don’t seem significant until you aggregate a month’s worth of individually small transactions.
Whether it’s seeing how much you really spend on eating out, or what parking fees actually amount to, or how much groceries actually cost, tracking your spending in detail is always an eye-opener.
Start Tracking Your Spending Today
Don’t bother back-tracking. Just start from today. Trying to recreate past spending is frustrating and unproductive. Start today. Write down everything you spent today, including cash purchases, checks, online purchases, automatic withdrawals and bill-pay. Everything! Then do it again tomorrow.
The easiest way to track expenses is also the simplest – get a pad of lined paper, write the month at the top, and add one expenditure per line for every expense of the month. If you’re comfortable with Excel or another spreadsheet program, a spreadsheet is the electronic version of lined paper. You don’t need any fancy tools to track spending, just the commitment to actually do it every day.
There is a printable expesnse tracking sheet in your Frugal Fresh Start Workbook (you’ll get it emailed to you when you join the challenge). I’ll link to an Excel spreadsheet version below. In the above video, I walk through exactly how to use both of these tools.
Categorize Carefully
Be meticulous about your categorizing. Avoid categories like “shopping,” “miscellaneous” or other catch-all categories that don’t force you to analyze your purchases. Knowing that you spend $400 a month on miscellaneous things isn’t very telling. You really need to know where your money is going in order to improve your financial habits and be more frugal. We’ll get more into categories next week when we start in on budgeting, but for now, just be careful not to be overly broad in your categories.
Be careful of using programs like Mint.com to categorize for you. When you start paying attention, you’ll realize that Mint actually doesn’t do a very good job of categorizing your spending. You can still use Mint to track spending, just don’t count on it being as automated as you think. You will need to manually adjust the categories for many transactions. It’s pretty hilarious sometimes to see Mint guess at the expense category.
While it is convenient to have transactions automatically appear like they do in Mint, real awareness of your spending habits comes when you manually enter transactions. Not only will you get the category right the first time, but you’ll have an intimate relationship with your spending, as it happens, every day.
Here’s a Free Expense Tracking Spreadsheet for you
If you want to track expenses electronically, I created a basic Expense Tracking Spreadsheet that you are welcome to download for free. There are several sample entries to give you an idea of how it works. You can delete them when you start. I have some common categories already listed, but you can edit them to fit your specific needs. As you will see, I focused on variable expenses, but you can add categories for the expenses as they occur. We will talk about budget categories in detail next week.
Be sure to split transactions that cover more than one category. For example, transactions from Walmart or Target could have groceries, household items, clothes, gifts, or other categories all on the same receipt. People fall into the trap of using categories like “shopping” and “miscellaneous” because they a) are too lazy to split up the transaction, or b) don’t have their receipt to know what they bought.
For those of you who use YNAB to budget, you are already tracking your expenses! YNAB’s mobile app allows you to enter your spending right when it happens and then syncs with your desktop budget and your other devices, making it easy to stay on top of your expenses, especially when there’s more than one spender in the household.
Here are a few tips to help you with expense tracking:
- Save your receipts. Looking just at your credit card statement won’t tell you what you bought at Walmart.
- Be sure to include online transactions.
- Include automated withdrawals and bill-pay transactions.
- Don’t forget to enter cash transactions.
- Do it every day. If you let four days go by, you can recreate your spending, but it’s painful and unnecessary. Just do it each day before you go to bed.
A Warning on Expense Tracking
If you’ve never diligently tracked your spending and you’re under the impression that this will be a fun or easy exercise, I warn you that it probably won’t be. You’ll have to be meticulous and diligent. Starting new habits is hard, and this one is particularly hard for many people.
Also, seeing your actual spending numbers written down might be discouraging. Don’t let it get to you. Getting detailed information about your spending is the only way to make focused changes to your spending. I promise it will be worth it to get a clear picture of where your money is going.
On the bright side, tracking your spending might even help you curb habits. You might avoid making unnecessary purchases just so you won’t have to write them down, either for shame or laziness. If you’ve ever tracked your food intake for a health class or to improve your diet, you may have noticed this same phenomenon. It’s a nice side benefit of tracking your habits.
Challenge– Day 3
Start tracking your spending, every expense, every day, for the rest of the month. I simply can’t adequately express the importance of this exercise, even for those of us who think we already know all about our expenses.
Have you tracked your spending before? How did it go?
I tracked my husband’s and my spending all of last year. When we looked at the monthly average cost in each category, it was easy to decide what our 6 month goal would focus on (Day #1 – decrease eating out). It also made it way to see where we could cut costs (Day #2 – drop membership to one of the two gyms).
We are going to continue to track where our money is spent. It is well worth it because even if you don’t track everything, you will be see trends about how and where money is spent.
The spreadsheet is not opening properly. I was looking forward to it!
Any ideas? I am on a mac.
Hi Barb! I just tried the link and it worked fine. If you look in your downloads folder it should be there. Depending on your browser settings, it won’t necessarily pop up, but it will automatically download. I hope that helps.
I’m intrigued by the YNAB spreadsheet. I am a exact number kind of girl……however hubby is a change saver, and not exactly on board with balancing to zero. He agrees that we need a budget, need to cut back expenses etc. He reminds me that he doesn’t shop. I maintain that he spends more than he realizes in incidental purchases. He is unwilling to be accountable for. Every night he puts his pocket change in a “piggy bank”……so he obviously spent whole dollars to have change for the bank. So has anyone got suggestions for when your partner isn’t 100% committed?
I found your blog on Pinterest this week. I’m a long time budgeter, but I’ve never loved the various spreadsheets we have tried. I saw your snapshots of ynab while browsing different posts and thought YES! That is a budget nerd’s dream! 🙂 I love it! Our 6 month goal is to cash flow a $1000 car repair and $1000 of orthodontic work with out touching our emergency fund. We are a family of 5 on one income, so it won’t be easy!
Haha! YNAB is a budget nerd’s dream. 🙂 I’m glad you found your way here Mandy! Those goals look great!
Thanks to your recommendation, and others, I am using YNAB. I have to admit I have been frustrated getting it going and so a friend has encouraged me to just use it to track my groceries, clothing, and a few other things that “I” do the spending on rather than roping my husband into it at this time. He does all of our banking and bill paying and I spend whatever money I need from our joint account on groceries, etc. I feel like if I get a handle on our variable expenses, then I can show him my months of data and maybe that information can help us. So far, I’ve recorded my spending every day in January. I’m really enjoying this daily series, by the way! Thanks for your efforts!
Great job Susan! Way to stick to it and do something, even if your husband isn’t on board.
I’d set up a Mint account several years ago, but stopped using it after a few months. Far too often in life I’ve taken the “ignorance is bliss” stance. Shame on me. Guess I’m stopping that now, though; just went and updated it so I can see what we spend where. =)
Time to act like a responsible grown up! (ick…)
I think the “ignorance is bliss” stance is held by more people than you’d think. Kudos to you for doing something about it! Way to be responsible! 🙂
=) You are always so positive and encouraging and non-judgey. Thank you!
Great job with the excel spreadsheet. I like the color codes. I look forward to reading the rest of your series.
Thanks Karen! I like looking at pretty colors instead of what you find in typical financial spreadsheets. 🙂
I’ve got this down pat!
I use GnuCash program to keep tally of my spending, and I stick my receipts to my fridge door with a magnet. And, I use a pen and paper to write down what I spent, and what means (cash or card). That way I’m top of my expenses and I can see how much I’ve spent already– allowing me to better ration the rest of my funds to remaining activities, including entertainment and charity.
It sounds like you’ve got a system that works well for you!
Just realised that we are starting out on year 15 of tracking our expenditure! We started out in 2000 when we realised that due to ill health we might need to manage on one salary. We started reading Your Money Or Your Life at the same time and working towards being FI (Financially Independant). We managed it in 2003.
Tracking really is the way to go!
That’s wonderful! I’d say that’s a good success story for tracking your expenses! 🙂
Pinning down all the random “auto-pays” is going to be my biggest challenge, I think, but definitely worth the effort because I’m pretty sure that’s where we’re hemorrhaging the most (aside from ALL.THE.GROCERIES. but that’s a different [known] challenge. ;p).
Quick question about the split transactions (when you break down your single Target receipt into groceries, household, etc): how do you handle the sales tax? Since you’re budgeting to zero and not the nearest whole dollar that means exact amounts… do you calc the tax for each category or do you give the tax its own category – example: groceries, household, sales tax? Inquiring (OCD) minds and all that. ;p
Thanks!
Good question not something I thought about.
I usually just estimate, it’s not perfect. I suppose you could do the math to get the specific amount to include in each category.
I am not as specific as that with my use of YNAB.
I do split transactions sometimes, but what I do is just estimate/round my purchases at Target/Walmart afterward. If I have a purchase of say $67.89 I would usually just look at what I purchased and say–looks like about $50 went to food, and the remaining $17.89 were towards a gift. I don’t sit down with a calculator and get it to the exact penny as far as categorization goes. As long as the split transaction components add up to the total purchase. That works well for me and my family.
For me, I want to make sure that documenting expenses is a very doable, reasonable thing to spend time on in my everyday life.
I have heard of people being so budgeted that they will even split up their grocery budget like: $10 for meat, $5 for dairy, $7 for fruits, etc. To me, that just isn’t sustainable. I would rather spend my time doing other things 🙂
Perfect answer Janet! I don’t do the math to figure out the exact tax when I split transactions, but I do account for every cent. If I have 3 categories on a receipt, I will enter a rounded number ($10.50, $13.00) for two of the categories and the 3rd category will have ($10.37).
When I split a transaction in YNAB, first I enter the total amount and then split it. It conveniently does the math for me and tells me how much I still need to allocate so that all the categories equal the receipt total.
I agree that your system needs to be simple enough to be sustainable. For me, dividing up my food budget would be too tedious. Now, if someone has a food budget that is out of control and doesn’t know why, then it might be helpful for a month or two, to track the spending per food category. They might discover that they spend an extraordinary amount on prepackaged snack foods or way too much on meat. For normal use, I think most people are fine to lump all groceries together.
Thanks everyone! I’m still in my “trial phase” with YNAB (loving it, btw) and it reminds me so strongly of accounting software I used to use when I worked in payroll when *exact amounts* where mandatory. 🙂 I appreciate the encouragement that a bit of estimating totally kosher and sanity saving – lol!
I keep a planner in my purse to keep track of our checking account (similar to an old school register, but easier to keep track of automatic payments and regular expenses), but we don’t usually go back to see how much we have spent on different categories. We’ve had the intensity of a house cat instead of a gazelle. It will be interesting to see how updating my husband’s W-4 will change his paychecks this year, and we are making more of an attempt to stick to the budget so we can make additional payments on debt.
Making additional payments on debt is great motivation! That’s great that you’re already in the habit of keeping track of expenses!
I used YNAB about a year ago for a few months, it was fantastic to really let you see where your money is going and it did curve my spending. But I fell out of doing it. So today im going back to YNAB and will track everyday!
Awesome Samantha!
We have been using YNAB to track our expenses since September and we love it! Thanks for recommending it by the way :). It really does help to see where all the money goes, and the accountability to my husband for spending is much more immediate since he can check daily and easily on where the money is being spent. It’s helped me because if I know that if I use our debit card to go out to lunch and then record it in YNAB, he will get an update, and then he will know that I went out to eat after we agreed not to this month! That extra accountability has actually helped me make better spending choices and it’s actually been great!
YNAB really does help everyone be on the same page and up-to-date with the budget.
I usually track our spending in Quicken, but I think your suggestion to write it out and have more specific categories will be a huge help.
That’s great that you’ve been keeping track. Having more specific categories really helps you know where your money goes and see where you can improve.
We used to use Mint.com to track our spending, but thanks to your recommendation, we have been using YNAB for about 7 months! I LOVE it! It really is worth the money and really is a great product. It is so freeing to know that you have money for your bills and to know where everything is going. You can be much more intentional about your priorities and spend accordingly.
I’m glad you’re loving YNAB too! It really is freeing!
I’m catching up here! My six-month goal is to save an extra $1000 to give to my retirement account (on top of my normal contributions.) Tracking’s really helpful for that because it helps me be sure that I really have cut stuff I’d normally spend on. I’m getting my account off to a good start by not renewing my amazon prime membership, which is $99 and due to be charged at the end of the month (except I’m canceling it so it won’t be!)
That sacrifice alone will account for 10% of your goal! Awesome!
I have never really tracked my spending other than just trying to keep track of bills and what’s left in the account. This has caused problems in over spending but not too often. I am bad with commitment to this kind of thing so I hope by really starting the habit this month it will become second nature and not something to think about. We started using YNAB and I’m excited for the accountability from myself and husband. We also decided to take a white board and write out how much debt we currently have and hang it in the room where we spend most of our time. It will pay payoff amounts of individual debts, total debt as well as 6 month and 1 month goals for financial, family, and personal. Thanks for the motivation this year is going to be great.
I love the whiteboard with your goals and remaining debt! It’s great to keep them in front of you like that!