If you want to win money, you must modify your money-related behaviors. You accomplish this by creating and keeping to a budget. You accomplish this by keeping track of your spending.
This is the key to transforming your budget from excellent intentions to great results. So, let’s look at how to manage costs in four simple stages.
How to Track Expenses in 4 Simple Steps
Tracking spending (also known as tracking transactions) is simple—it’s a habit. And, just as with other key habits (such as flossing), it takes some effort and practice to transition from attempting to remember to doing it automatically. But you will get there. Your teeth, as well as your pocketbook, will thank you. Simply follow these four steps.
Step 1: Create a budget.
You will be unable to track spending without one. What is a budget? It’s your monthly spending plan. When you budget, you assign each dollar that comes in during the month a task, such as spending, saving, or giving.
And, listen, budgets have a horrible reputation. Has anyone ever informed you that a budget is too limited? The fact is that a budget does not rule you; you control it. It’s a roadmap you create to ensure your money accomplishes what you want it to do. So it truly grants you permission to spend!
Also, if you’re concerned about the amount of labor needed in budgeting, check out EveryDollar. This free tool simplifies the process of creating (and sticking to) a budget.
Okay, here’s how to build up a budget:
1. List your earnings.
Make a list of all the money you intend to make this month. (That includes your normal paychecks and any extras, such as that side hustle!) Add everything up. This is the amount of money you have to work with this month!
Do you have an irregular income? Just look at what you’ve created in the previous several months. List the smallest amount as this month’s projected income. We’ll go over this in further detail shortly.
2. Make a list of your spending.
It’s time to plan for everything you’ll be paying for this month. List your costs in the following order:
Giving (10 percent of your income)
Savings (based on your Baby Step)
Four Walls (food, utilities, housing, and transportation)
Other necessities (insurance, debt, daycare, etc.)
Extras (entertainment, restaurants,
3. Deduct your costs from your income.
This should be zero. If you still have money left over, that’s fantastic! Put it toward your current Baby Step (the tried-and-true method for saving, paying off debt, and growing wealth). If you have a negative number, reduce your anticipated totals or eliminate excess until you reach zero.
This is known as zero-based budgeting, and as previously said, it is all about assigning every single dollar you earn to a specific task. That way, your money will work just as hard as you.
You must now adhere to the budget you have established. That is where the tracking comes in!
Step 2: Track Your Income: Enter your normal paycheck amount into your budget. Log in any money you make from a side hustle or selling anything.
This step is critical if you have an irregular income. Remember that you budgeted low when you indicated your income. So, if your income exceeds your expectations, it’s time to modify. You can increase your present financial goals or cover some more expenses in the budget.
Keep track of your money, even if it is consistent! For starters, you can ensure that your paycheck is accurate. Another benefit is that it helps you stay inside your budget.
Step 3: Keep track of all your expenses. All month long!
When you fill up the petrol tank, deduct the cost from your transportation budget line. When you pay your rent, deduct that amount from your housing line. When you buy tickets to your favorite boy band’s reunion tour, deduct the cost from entertainment.
You get the picture. Keep track of any money that leaves your wallet, bank account, PayPal, cash envelope, coin purse, or old-fashioned piggy bank.
Make sure to deduct when tracking. Then you’ll be able to see how much money you have left in each budget category. This is where the magic happens—because this is how you stay on track with your expenditures and avoid overpaying!
Step 4: Establish a Rhythm for Tracking
Keep track of your spending on a regular basis. That might be weekly, daily, or before you leave the grocery store parking lot.
Whatever works for you and keeps track of all your expenses without losing paper receipts in that kitchen drawer that must be a doorway to another dimension. (How else can you explain what goes in but never comes out?)
If you are married, make sure you both follow the same budget and log your spending. This is ideal for accountability and communication. That way, neither of you will ever claim, “I didn’t realize you spent the majority of the entertainment budget on ziplining tickets.” I wanted to register us for a couples hip-hop dancing lesson.”
Four Ways to Track Expenses
1. Pencil and paper
Don’t reject old-school approaches. Many people prefer a decent paper budget as a money-tracking approach.
Pros
You do not require access to technology.
Writing things down demands a functioning brain. (Active minds are especially useful when dealing with money.)
Cons
It’s a lot of work to continually write down and keep track of the arithmetic.
If you lose receipts, mix up your figures, or neglect to record certain expenditures, you may wind up with a blown budget.
Conclusion
Hey, budgeting with pencil and paper is far superior to no budget at all. If it is the only route you want to go, go for it! Also, if you want to start with a paper budget and subsequently transition to another technique.
2. Envelope System
The envelope technique focuses on paying cash for as many items in the budget as possible. You may autodraft costs like as retirement contributions, mortgage payments, and some utility bills, and you can send checks or use a debit card to pay other bills online. However, you will only pay for in-person charges with cash.
So, at the beginning of each month, label certain envelopes (or use a special split wallet) with the budget lines you want to pay for in cash. (Examples include groceries, entertainment, and restaurants.) Then, fill each envelope with the amount of money you allocated for that specific line.
Pros
You know exactly when to cut back on spending since you see when the envelope is running low.
You do not overspend since when the envelope is empty, you are finished spending. (Your money effectively tracks itself!)
Cons
Sometimes paying with cash is inconvenient.
With the development of e-commerce, paying with cash isn’t always practical.
Conclusion
Physically witnessing the money leave the envelope instills a new sense of responsibility. Even if you use a different technique to track your costs, using the envelope system with part of your budget lines is an effective approach to manage your money.
3. Computer Spreadsheets
It’s time to talk about digital spending monitoring methods, namely computer spreadsheets.
Pros
Spreadsheet fans like the abundance of template alternatives.
You may make your own budget.
Once set up, the math is done for you.
Cons
Spreadsheet aficionados don’t always marry other spreadsheet fanatics. This may produce some conflict in the financial and marital departments.
Having to physically access your computer every time you need to track a transaction might be quite cumbersome. And if you don’t make frequent trips to input costs, your budget isn’t truly a budget—it’s just a spreadsheet full of plans.
Conclusion
Again, if spreadsheets are the only way you want to budget and monitor your expenses, that’s better than not budgeting at all!
4. Budgeting Applications
We enjoy a good budgeting software. Seriously. Most of us have our phones with us at all times, therefore we can carry our budgets with us as well! Brilliant.
Pros
It’s really convenient.
You can log in from your phone and track your spending quickly, no matter where you are.
Budgeting applications often provide several tools to assist you in creating your budget and staying on top of your finances.
Sharing the same budget with your spouse is quite simple.
Cons
You need access to technology.
The firm that created your app might shut it down, wiping out your budgeting data (as happened with Mint recently).
Conclusion
If you don’t keep track of where your money is going, you’ll constantly wonder where it went. Budgeting applications make it much easier to remain on top of your expenditures, allowing you to move beyond good intentions and achieve financial success.
Get an expense tracker and track all of your expenses.
Okay. You’ve seen why, how, and the most popular ways for monitoring money. Now is the moment to act.
The most important thing to remember here is to budget, which involves tracking your spending. You need a budgeting approach that holds you accountable and in control—while also being simple enough to follow!
Tracking spending is the key to successful budgeting. And now that it’s no longer a secret, you can make it happen!
