I’ve covered budgeting before, at great length. Whether you’re a beginner, or you’re used to advanced budgeting tactics, the core part about your budget is your ability to track your expenses. Often, when I talk about budgets, tracking expenses gets mentioned, but I thought it deserved its own attention, as actually tracking your expenses can be a bit of a chore. Plus, if you’ve never had to do it before, it can seem intimidating. So let’s break this down into simple components – there are 5 easy steps you need to follow to properly track your expenses.
1. Create A Budget
First up, you need to come up with a budget. If you’ve never done that either, you can read my complete guide here. For a quick budget, try the 50/30/20 rule.
The 50/30/20 rule doesn’t work for everyone. I’m not sure I’d even recommend it as the ideal budgeting tactic. However, it may work for you and it can be a great place to start from. If you don’t know what it is, it’s actually pretty simple. You spend 50% of your net income on your needs – things like food and shelter. You spend 30% on your wants, like subscription services. Last, but not least, you put 20% away towards your investments.
It’s not the perfect budget. It isn’t as aggressive as I’d like, and the distribution may not work for a lot of households. That being said, it is definitely something to jump off from, and it gives you a good minimum amount to start investing to ensure you’re secure in your financial future. As you learn to track your expenses throughout the other 4 steps, you can always come back and tweak your budget to fit better with your lifestyle and financial goals.
2. At A Minimum, Schedule A Time Each Month To Go Over Your Expenses
Okay, we have a basic budget and now we need to go through the process of checking all of our expenses. Well, you need to set aside some time in your schedule to go over all of these expenses. A popular option I see, and one that I’m a fan of, is sitting down once a month and going over your finances – including your expenses. Now, this will mean that it takes longer in that sitting, but the plus is that it only takes one sitting. Most people can probably get it done in under and hour or two – so set aside that time and you’ll be set!
Alternatively, You Can Track As You Spend
Another option is to track your expenses actively as you spend. This means you won’t have to sit down at the end of each month and take a whole hour to do it, but this may be harder for you to commit to. Remembering to make a note of your purchases as they happen can be a bit annoying, and many people will probably get discouraged and quit doing it or completely forget about it. So, I don’t exactly recommend this choice, but it does work for some people so it could be worth a try if you don’t like sitting down to review it over an hour or so.
3. Spreadsheets, Spreadsheets, Spreadsheets
Well, it’s no secret that I love spreadsheets. You can see the budgeting template I use below. During my monthly review, I will make a note of all my expenses. This keeps it all in one place so that I can keep track of it with ease. It works wonders for me, personally. If you want to use this template, sign up for the Bitter to Richer newsletter. In the welcome email I send out this budgeting template as well as a financial goals worksheet!
Create Categories For Your Expenses
Whether you use my spreadsheet or not, be sure to put your expenses into different categories. That way it’s easier to get a quick snapshot of all your spending. It may sound a bit over the top, but it’s nice since it lets me know the problem areas at just a glance.
4. Review If There Is Anything You Can Or Should Cut
Okay, now you’ve made a budget, set aside the time to track expenses, and put those expenses into a spreadsheet. With all that done, you should be actively reviewing your overall spending and see what you need to fix. To give you an idea, many people can cut a significant part of their budget by focusing on housing costs, transportation, and food.
If your rent or mortgage costs too much, downsize. If you’re spending too much on your car, just buy a reliable used car. Buying new cars or leasing is a fast way to hurt your financial security. Alternatively, if you eat out too much, try to reel that back in.
Include Your Spouse In The Discussion
It’s crucial to include your spouse in this process. If you want to take point on budgeting and tracking the expenses, that is fine. However, you should talk to your spouse about what you’ve found and the problems you need to fix. Finances are a topic that cause so much stress and constant arguments in so many households. When you approach this subject, you need to be smart in order to avoid a disaster.
Nobody is perfect (or even close), so it’s important to approach this with an open mind and a non-judgmental attitude. Almost everyone has something they spend more on than most normally would, but it’s about balancing your spending – not telling your significant other they can’t spend money on things they like anymore.
5. Use A Budgeting App To Make It Easier
If you do all of these and want another tool, or something to cut down on the review time, use a good budgeting app. Mint is a very good one, and it has a lot of useful features for a clean and simple budgeting app. Alternatively, my recommendation is Personal Capital. Think of Personal Capital as a collection of free personal finance tools for your arsenal – including a budgeting tool. It has services you can pay for as well if you want, but most of the features come at no cost whatsoever and are top notch.
Conclusion
Think I missed something important when it comes to tracking expenses? Let us know in the comments! Whether you have general thoughts or tips on the subject, I’d love to see them. Even better, if you have major shortcuts or useful tools, I’d love to hear about those too.
