One of the best things you can do for your finances is to begin tracking your spending. Tracking your spending allows you to pinpoint financial habits so that you can see where you might need to make changes — as well as where you are doing well. When you decide to track your spending, though, it helps to approach it in a way that is systematic and helpful.
Step 1: Set Up Personal Finance Software
One of the best ways to easily track your spending is to set up personal finance software, or begin using a personal finance web application. There are plenty of free and paid options that can help you. Some options include Quicken, Mint.com, GnuCash, and moneyStrands. You can it up to automatically connect to your bank accounts, or you can set things up to enter information manually.
Step 2: Consider Spending Categories
Once you have your accounts entered, or your profile set up, you need to figure out spending categories. Many web applications and personal finance programs offer categories automatically. Think about your most common expenses, and what categories they would go into. This can include such labels as Groceries, Entertainment, Housing, Retirement, and other spending areas. I like to include Snacks and Fast Food as ways to track those pesky little expenses that can add up faster than you might imagine.
Step 3: Keep Track of What You Spend
Your next step is to keep track of what you spend. This includes keeping track of what you put on credit cards, as well as what comes out of your checking account. You want to get an idea of all your spending — not just some of it. Some people even set up an “account” for Cash and keep track of their cash purchases. I find this too exhausting, but I do have a category set up for Cash, and use it when I withdraw cash from my account. If I see that I have been using cash an awful lot, I know that I need to slow it down, since many of these purchases are unnecessary items.
Step 4: View Spending Reports
Tracking your spending isn’t very useful unless you periodically check up on your habits. You can look at reports from your web application or finance software that show you how much you are spending in each category. You might be surprised at what you are spending in Entertainment, Snacks and Recreation. Look for patterns, and ways to cut back. If you find that you are spending a lot on Household or Groceries, maybe it’s time to examine your shopping list, or look for coupons. If you are paying a lot of fees, it might be time to shop around for a new bank.
Tracking your spending is a basic principle of personal finances. If you do it right, you will find that you can get things under control.