It has never been easier to spend money. Whether swiping for an oat milk latte or tapping for those new sneakers you have been eyeing, sometimes we all lose track of our many purchases.
So, how do you keep your urge to swipe at bay? The answer is simple. Tracking your spending can help you better understand where your money goes and maintain your financial health.
While closely analyzing your spending may sound stressful, it doesn’t have to be. Instead, it is a pretty easy first step toward financial peace of mind and more guilt-free enjoyment of after-work drinks with co-workers, the occasional boujee dinner, tickets to Coachella, or that Cabo trip you and your friends want to finally take out of the group text.
Let’s take a look at a few simple ways to keep track of your spending.
Know Where Your Money Goes
Before becoming an expert spending tracker, you must know where your money goes monthly. This process is often eye-opening (and a little cringey). All those coffee runs and food deliveries add up.
A rigorous inventory of your checking account and credit card(s) reveals your variable spending – gas, dining out, personal care, etc. – and fixed spending – rent, phone bill, insurance, wifi, etc.
Your variable expenses change over time, often in cost and frequency, and are pretty easy to decrease if you’re willing to cut back every now and then.
Understandably, your fixed expenses are, you guessed it, fixed. This means their cost and frequency are typically out of your control. But that doesn’t mean there aren’t ways to spend less.
For example, maybe your pricey phone plan offers more data than you need, or your expensive Wi-Fi plan features more MB/month than necessary to meet your usage.
But as variable spending is most fluid, it is the expense category where you’ll be able to make cuts the quickest, as we’ll explore below.
Classify Your Spending
Once you have wrapped up reviewing your account statements and finding your variable costs, the next logical step is to divide your spending into several categories.
Common examples include travel expenses, dining out, luxury self-care, clothes shopping, and subscriptions. The things that make life fun, but can quickly drain your funds.
Upon checking their monthly spending, many people find costs like these eat up a LOT more of their money than they realize. Especially if they don’t understand how their credit card actually works.
From the moment you wake up to the second your head hits the pillow, you’re flooded with small opportunities to mindlessly – and often needlessly – spend your money on so many things.
From your $5 cup of boujee coffee 3x a week to the monthly streaming subscription you signed up for months ago and promptly forgot, your spending is likely full of extra costs you can cut down on.
By categorizing your variables spending, you’ll easily see where you can cut corners or where you would like to invest more.
After all, tracking expenses is not about trying to spend 0 money. It’s about finding ways to use your hard-earned cash to balance your enjoyment of life in the present AND your goals for the future.
Determine Needs vs. Wants
To become a master expense manager and stay on top of your finances, you next need to analyze your spending categories and determine the expenses you feel you need vs. those that you simply want.
It can be a bit painful to see just how much you may have gotten carried away with unnecessary spending. Especially if you battle credit card debt.
Things you want to spend money on are most likely fun, but not entirely necessary. A few of the many possible examples include events (sports, concerts, live comedy, etc.), drinking and dining out, alcohol, gym/club memberships, travel (particularly for vacations), clothing and jewelry, and luxury self-care (e.g., spa days).
These expenses often lead to some of the most legendary pics in your camera roll, hilarious convos in your group chats with friends, and painful moments in your checking account.
But remember, examples of variable spending are diverse. Beyond fun stuff, things you likely need to spend money on include gas for your car, funds for your public transport, groceries, haircuts, and essential home goods.
Many financial experts recommend devoting 50% of your budget to things you need to pay for and only 30% to things you want to purchase. The other 20% typically goes to “good debts,” which we can discuss in another blog post.
While it might be sad to say goodbye to your weekly $9 green smoothie, second concert this month, or third trip to your favorite bar with the expensive, insta-worthy cocktails, separating wants from needs is crucial to success as a money organizer.
Create a Monthly Budget
After you complete these steps and thoroughly analyze your past spending, the best way to track your current/upcoming expenses is to create a monthly budget.
Thanks to technology, there are many simple ways to do this:
If you’re a DIY-lover, you can create your only monthly budget template using applications like Google Sheets or Microsoft Excel and divide it into categories, such as “Savings” (e.g., emergency, retirement, vacation funds), “Wants,” and “Needs” to regularly track your spending in comparison to your income.
However, if DIY and math aren’t your things, you have options!
It’s never been easier to be an expense tracker thanks to the MANY budget planner and expense tracking apps and services available today.
These options offer a range of templates to choose from, helping you create a budgeting system that fits your organization style and spending habits, making it simpler than ever to compare your expenses and income.
Track Your Spending with Ease
In 2022, there’s no excuse not to track your spending and develop a budget aligned with your personal finance goals.
To recap, we recommend taking some first steps:
- Reviewing Your Monthly Statements
- Classifying Your Expenses
- Determining Wants vs. Needs
- Creating a Monthly Budget
The main takeaway: Retail therapy usually brings only temporary happiness, but saving up your funds could help you reach your big life goals.