You want to save money and you feel like you can do it but every month you feel like you’re coming up short. Where does all of your money go? Why are you not saving the way you want to? Honestly, there are many different reasons, but a good first step would be to start tracking your spending to create a budget.
Where to start
It is often difficult to even know where to begin when budgeting. Often the best place to begin to review your spending over the previous 30-90 days. This includes looking over your bank statements, credit card statements, check registers, and more. You want to know where every single penny you spent went. You can see why you never save as much as you planned and why you feel like you’re always coming up short. When you take the time to complete this step, you have a really good idea of exactly where your money has been going.
This is good for several reasons:
- You know what your weak spots are.
- You can adjust your spending habits more easily because you can recognize them.
- You can create a realistic budget.
- You can know where to make cuts in your budget categories.
But why does it matter?
Reviewing, or tracking, your spending in the past months helps to provide insight into how you have managed your money without a plan. Tracking your spending after you have created a budget helps to keep you on track. It will also help you to increase your savings.
For example, let’s say I spent $76 during February on coffee drinks. When I look back at the previous month, I know I have a weakness for coffee drinks and I have to change this habit if I want to pay down my debt and save money.
Another example would be I spent $86 dining out during February. I definitely don’t want this pattern to continue so I will need to limit my dining out experiences and/or expenses.
If I cut out both coffee drinks and dining out, I would have another $162 I could put towards savings!
Another good reason to track your spending is to get a better understanding of your utilities. If you track how much your electric, water/sewer, and gas bills over the course of a year, you’re better able to make decisions about how to reduce these costs or if you need to change plans. Many utility providers offer you the option to to select a plan that allows you to pay the same amount monthly. This may or may not be a good choice for you, based on your previous usage.
How do you do it?
There are two primary ways you can go about this:
- Track your spending retroactively.
- Track your spending in the present.
- Optional: Both.
Either way, I highly encourage you to create a budget based on your results. It is a good practice to continually update your budget, so you could complete a budget based on both a retroactive track and a present track.
If you elect to go with a present tracking strategy, make sure to lay out some ground rules for yourself by answering the following questions:
When will you be done tracking?
It is important to set a timeline for yourself. Setting a deadline allows you to reduce your anxiety by being able to focus on the end goal and know the experience is only temporary. You may want to select a date that is 30, 60, or 90 days from your start date to give you a decent amount of insight in your habits.
What do you want to gain from this experience?
If you want to test yourself on how little you can spend, great! If you want to have a hard, honest look at your unfiltered spending habits, that’s also great. Whatever your goal for this experience is, make sure you write it down and keep it in mind as you go through your tracking trek.
What will you need in order to complete this tracking experience?
Will you do a completely card-only tracking period or will there be cash receipts mixed in. Know ahead of time if you will need to keep paper receipts to track any purchases to avoid throwing away pieces to your financial puzzle.
Do you really want to make a change?
Examine your commitment to this task. Are you just in a curiosity phase or are you preparing for a lifestyle overhaul. Review what stage of change you are in, and most importantly, be honest with yourself.
How will you hold yourself accountable?
The longer the period of time, the more important it is to hold yourself accountable. If you want to complete the full time period, it will be helpful to place a visual reminder, have a buddy hold you accountable, or even change your desktop background to a reminder. Whatever you need to do to keep yourself on track… And don’t fudge your numbers.
Are you prepared for what you may find?
When you are done with your tracking experience, you will need to be honest with yourself. When you finish up, you will need to calculate how much you spent each month in each category. This probably won’t be the most fun thing you do during this time period. Be open and honest with your spending so that you can make necessary adjustments to improve your spending habits.
Remember, you are in control here.
Have you ever tracked your spending? How did you do it?