Why Tracking Your Expenses Is Important
Do you always run short of money before the next payday? Are you trying to save a down payment to finance your dream car but can't seem to keep any extra money from your fortnightly or monthly paycheck? If you don’t start tracking your expenses, you will continue to have a hard time managing and taking control of your spending.
Expenses tracking is essential in successful financial management. By knowing where your money goes, you can effectively sort out your financial priorities based on your budget. This will help you save for your financial goals and achieve the lifestyle you want.
Benefits of Tracking Your Expenses
Tracking your spending habits provides a lot of financially healthy and wealth-building benefits, including:
Identifying the expenses you’ve made within a particular period, like a week or a month, maps out your spending pattern. This helps you better understand your spending behaviour. It also puts you in the control seat where you can easily adjust spending according to which expenses need more funds and which ones need to be cut, as well as make necessary improvements.
By factoring in your daily caffeine fix at ONA Marrickville, for instance, you will finally understand why you’re always short on budget even when you rarely buy expensive clothes or pay for luxury services. You may need to switch to a more affordable coffee store or brew your own coffee to address your money trouble.
Identify Spending Issues
Tracking your expenses gives you a better understanding of your spending habits and address financially unhealthy behaviours. For instance, after seeing how much money you’re wasting on monthly subscription services that you seldom use, you may want to do some subscription cancellations and allocate the funds instead to your debt repayments or household expenses, like food and education.
Most of the time, running short of the budget is a result of bad money habits like spending more than you make and buying the stuff you don’t need. Having an awareness of your spending habit helps you create an effective budget plan that will cover all your essential expenses while keeping you from overspending on “wants”. You will know when to stop allocating money on non-essentials and will likely stick to your budget.
Tracking all your monthly or weekly expenses and cutting several of the non-essential ones make room for savings. You can easily allocate the money you save from cutting down the necessary expenses to your savings fund. The longer you stick to your budget and control your spending, the bigger the amount that goes to your savings.
Supports Financial Goals
Tracking your expenses helps you map out your cash flow and course-correct your spending pattern. This helps you save and grow your wealth, which is essential when you have a financial goal to achieve. If you want to save money for the downpayment of a planned car loan next year, expenses tracking helps you commit to your budget and ensures you put money towards that financial goal.
How to Track Your Expenses
Write down every expense you’ve made
The classic way of tracking your spending is by listing down on a notebook or ledger all the penny you’ve spent and for what purpose, providing you with a quick look at where your money goes. This is easier to do if done daily, typically at the end of each day before going to bed. You can organize your expenses tracking by assigning budget categories to your expenses. You can either make a page for each budget category or just put the category next to each expense you’ve made.
At the end of each week, month or the budgeting period you have, review your expenses and compare it against your budget plan. Are there any expenses that are not included in the plan? Do you think these additional expenses are necessary? What does your spend trend suggest? You may need to adjust your spending and saving based on your needs and financial goals.
Use an Expense Tracker App or Software
Too busy or simply not a fan of manually listing expenses? No worries. Nowadays, there are a lot of apps and software that can help you create a detailed budget plan and effectively track down all your expenses without the stress.
These smartphone applications and financially software programs not only provide easy-to-use spreadsheets or database where you can conveniently list, categorise and track all your spending, but also show graphs and charts that illustrate your spending patterns. Some could even provide recommendations and areas for improvement.
Some Tips to Make Expense Tracking Easier
Develop a Budget Plan
Expenses tracking usually comes after budgeting. You can effectively and efficiently track down spending if you have a budget plan.
When creating a budget plan, assign different budget categories with assigned amounts. This usually includes necessities like utility bills and debt repayments, some non-essentials like entertainment and gym membership, and target savings. Identify all your expenses in their respective categories. As you spend within your budget, you can simply check the expenses you incurred or add those that you have not identified in advance. Add the actual amount on the forecasted expenses and check if there are budgeting adjustments to be made.
Married or Living With Your Partner? Work Together as a Couple
If you and your partner have combined finances and are sharing all the household expenses together, find a way to keep track of your combined spending. There are apps that allow you to do this. Apps are more reliable and updated than bank statements, which may still not reflect outstanding balances
Some apps have features that allow your expenses to sync with your spouse’s spending, minimizing the chance of overspending in one category while boosting your savings. You can also conveniently check how much you have left in a specific category while on the go.
Don’t Get Discouraged By Overspending
When you're tracking your expenses and seeing how much savings you make with conscious budgeting, it makes you feel good about yourself and motivates to continue what you're doing with your finances.
However, nobody is perfect. Even if you're devotedly tracking your expenses and income on a regular basis and trying to spend within your budget, challenges may come along the way in the form of emergency spending like hospitalization or replacing a broken computer. These expenses can ruin your budget but they are unavoidable.
Don't feel discouraged. If you're consistently overspending in one budget category, you can either adjust your budget by cutting down your allocated amount for non-essentials or you can make up for the overspending by getting a side hustle.
What's important is to continue to track all your expenses despite the drawbacks. It can help identify what you need to change and by how much, helping you meet your financial needs and goals easily.
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