The first step to budgeting and saving is to determine how much you spend. Tracking your spending gives you important insight into your habits. This practice will help you make more informed decisions when it comes to your discretionary spending.
Once you understand your spending, you can create a budget and track your spending on an ongoing basis. This will help you reach your financial goals and alert you to potential issues along the way. Here are 5 easy tips to help you track your spending.
- Start with past statements – Before you start, spend some time to understand your current habits. Start by printing out your bank statements for the past 2 or 3 months. Then segment your transactions into categories to get a picture of how much you are spending across the different areas:
- Look at the general types of items that you spend money on and make categories for each. Common categories include groceries, restaurants, health, housing, utilities, personal care, and entertainment.
- After that, organize your special circumstances and segment any additional categories you might need, like pet care, baby, and subscriptions.
- Track by store – It is easy to categorize spending if you shop at single use stores. Obviously, your spending at a local pizza joint should go to Restaurants. But what about your Amazon or Target purchases? Are those grocery, entertainment, household maintenance or personal care? If you’re having trouble figuring out what category these should go in, consider tracking and budgeting by store for these purchases.
- Make a ledger – Once you have your main categories, make a ledger to track ongoing spending. This could be a paper ledger, a computer spreadsheet, or a smartphone app. Think about which method suits you most. Remember, it doesn’t matter where you record these expenses, just that you are consistent. Pick a method that will be easiest for you to maintain.
- Use your debit card – Your debit card can be a great way to help track expenses. When you use your card, it makes an electronic record of every transaction. You can then access these records with Online Banking or a Mobile App and record them in your ledger. This is especially useful if you are finding it hard to log your spending every day. You can pick a day of the week to transfer these expenses from the bank log to your personal ledger.
- Try envelopes – If you are having trouble logging transactions one by one, consider using envelopes to manage your spending. With this method you withdraw a set amount in cash at the beginning of the week. This cash is divided into separate envelopes for each discretionary spending category. This will give you a tangible view of how much you have available as the week progresses. At the end of the week, record what you have left in the envelope to see how much you spent in each category. This method can also help you see when you are running short so you can scale back your purchases throughout the week or make adjustments before it’s too late.