The number one rule of wealth management is “Know where your money is going.” Don’t look it up, it’s an unwritten rule.
Everybody knows how much money is coming in every month. They just have to look at their paychecks. But not everybody knows where all of that money is going. Sure, they know about the big bills: rent/mortgage, student loan, car payment, utilities, phone, etc., but many don’t remember at the end of the month what they spent at the beginning of the month.
This causes them to always ask, “Where the hell did my money go?”
I certainly was one of these people. Every month I used to ask myself the same two questions. The question above and “What did I buy this month?”
I was really fed up with that routine so I decided to write down every single expense I made… I mean EVERYTHING. After a month I looked back at my spending and was able to figure out where my money was really going.
Keeping track of my spending helped me understand my spending habits and made me see the areas in which I was just throwing money away. I was then able to change my ways and I now can see a path towards financial independence in a not so distant future.
Tracking your spending is not hard at all. You just have to do it. And the good thing is there are many different ways you could track your spending. There is not just ONE correct way, you just have to find the one that’s right for you.
How To Track Your Spending
Good Old Pen and Paper – This is probably the way most people know how to do it. Just get an old fashioned composition notebook, write down your income and start subtracting the expenses. All of the expenses – down to the penny. Gather all your bills and write them down: cable, cellphone, car, credit cards, gym memberships, Netflix, mortgage, heat, gas (home and car). I mean ALL YOUR BILLS.
But wait, there’s more! Every time you buy something, write it down. It doesn’t matter how insignificant of a purchase you might think it is. Just write it down. At least for the first few months or until you have a hold on your expenses.
Carry that notebook wherever you go. Don’t try to keep the expenses in your head so you can write them down when you get home. Write them down right away or you’ll forget to do it later. Trust me, I’ve done it way too many times.
Spreadsheet – You can also keep track of your spending by using spreadsheets. This is one of my methods of choice because once you create them, you just copy them for the next month. And you don’t need to keep doing math – as long as you do the formulas right.
If you don’t know how to make your own, don’t worry. You can find hundreds of free spreadsheets by doing a web search. You can also check out vertex42.com, they have a lot of free templates you can download.
Computer Software – There are plenty of computer programs you could use, but my favorite is Mint. Mint is a free program/website that helps you budget, track your spending, set financial goals, and much more. You can sync all your accounts and have all that information in one place – bank account, investments, loans, etc.
What I like about Mint is that it is free!
Okay, I have to admit that I don’t use Mint anymore because I’m more of a spreadsheet type of guy and I like to write down all my expenses myself. I know Mint is easier, but that’s just me… I’m weird like that. But I highly recommend Mint if you haven’t found something that works for you.
Mobile Apps – We live in the age of technology in which our smart phones can do a whole lot more than just make phone calls. With our smart phones we can listen to music, take pictures, record video, record voice messages, take notes, browse the internet, send and receive emails, play games, watch movies, etc. You know what else it can do? Track your spending.
There are countless apps that allow you to track your spending without having to carry a notebook and a pen. Carrying a notebook everywhere you go might be doable for the ladies who like to carry big purses, but it is not doable for me.
What’s up with those big purses anyways? You could carry at least two kids in some of them. How many things do you really need to carry around at all times? I don’t have that many items in my car… and it has wheels and a trunk. I digress.
Most people carry their phones everywhere they go and it is really simple to just open up an app and type in your expenses as they happen. Some apps sync automatically with your accounts, but others are just for you to write things down and then enter them in your notebook or your spreadsheet when you get home.
I used an app called GoodBudget, which works like an envelope system. You add virtual money to it – based on your budget – and it subtracts your expenses and lets you know how much money you have left to spend. They have a free plan and a paid plan. I use the free plan because it takes care of all my needs. Like I said, I keep track of my expenses on a spreadsheet and like to enter them myself.
Some people like to sync all of their accounts but I found that to be dangerous because everything becomes automatic and I might not pay attention to my spending.
Track Your Spending
Whatever way you choose to track your spending is fine with me, as long as you do it.
You might think that tracking your spending is silly because you can do it all in your head, but I would advise you give it a try for a month or two. If after two months you find yourself saving more money than before, then tracking your spending helped you. If it doesn’t, then at least you tried.
How do you track your spending? How big is your purse?