One of the most basic and fundamental rules of personal finance everyone should follow is this: keep track of your money.
While I’m not a huge fan of budgeting in its traditional form, I am a fan of knowing where my money is going and how much of it I’m keeping or spending.
It’s essential knowledge to be aware of if you want to put your money to work for you. Want to pay off your debt quicker? You need to know how much extra money you can put toward it. Have multiple savings goals you’re working toward? Same deal.
The question most people are left with is: How can I keep track of my money?
There are many different methods as well as financial tools and resources to help you attack this challenge in the way that suits you best. So let’s review a few options!
Good Old Fashioned Pen and Paper
This is how I started tracking my spending many, many years ago. When I was in college, I had one of those agenda books to keep track of my homework assignments, and I also used it to track my spending on a daily basis.
This was easy for me as a broke college student – I didn’t have very many expenses to keep track of!
At the end of the week, I would tally everything up and categorize it. Again, the categories were minimal; I usually had food, gas and personal care on there.
This is a great method for teenagers and college students to use if their number of transactions are on the lower side. Of course, you can modernize it by keeping track of your spending in a notepad app that syncs across your devices, too!
Spreadsheets and Number Crunching
Once I graduated from college and moved out on my own, I upgraded to spreadsheets. I happen to be a spreadsheet fanatic, but I know this method can be cumbersome to others. If that’s the case, skip ahead, as I think you’ll like the next solution better!
There are tons of different budget spreadsheet templates out there that you can use if you want to manually update your spending this way. You don’t necessarily need to use them to budget, but templates cut out a lot of the upfront work.
I used to list out all my spending categories in one column, and in the other columns I listed my “budgeted amount,” “actual amount spent,” and “difference” to lay it all out.
I preferred breaking down my spending, so I had quite a few categories, but you can make this as simple or as detailed as you want. Maybe you only need an overall “living expenses,” or you want to break it out into “transportation expenses,” “food,” and “debt” categories. Do what works for you.
Some people prefer the spreadsheet option because it forces them to be in the thick of the numbers. This is a good option for people who need a severe wakeup call with their spending and are willing to get dedicated to the cause. It’s also a decent option for financial nerds who love to obsessively track things (I was guilty as charged).
Automate Your Tracking With Personal Capital
The easiest way to track your spending is with a service like Personal Capital because you connect your financial accounts to it, and your transactions are pulled automatically.
If you’re not thrilled with the prospect of manually tracking your spending day in and day out, and you tend to use your debit or credit card to make purchases, then something like Personal Capital is a great solution.
You can set up budgets and goals within the app, and you can adjust how your transactions are categorized in case Personal Capital gets it wrong. Your spending is displayed in a colorful graph, and it has a clean interface, which is a bit more appealing to look at than a spreadsheet!
Best of all, it’s free to use. The only thing I would say about using this method is to make sure you don’t simply “set it and forget it.” You need to stay on top of managing your money – this is just a quicker way of doing it. Set a reminder to check in at least once a week, if not more, and opt to have weekly digest emails sent to you so you know where your accounts stand.
Use the Cash Envelope System
Maybe you’re not a debit or credit card person. My parents are completely against using plastic and use cash whenever possible. If you’re extremely debt averse, it can make sense to prioritize using cash.
Thankfully, there’s a system you can use to make tracking your spending easier. I mentioned how I used to track everything in an agenda, but the truth is, sometimes cash slipped through the cracks. I personally like using my credit card because none of my spending escapes me!
That’s where the cash envelope system comes in. You need to at least anticipate your expenses with this, so it does help to have a budget in place beforehand.
You take out the amount of cash you’ll need for the entire month to cover your various expenses, and then divide the cash needed for different categories into the appropriate envelope.
So if you budgeted $300 for groceries, put $300 of cash in your “grocery” envelope. If you have $100 for gas, put $100 of cash in a “gas” envelope.
This is a rather broad tracking system since it depends on how many categories you use and how detailed you get, but in general, it will give you a good idea of where your money leaks are. If you blow through $300 on groceries by the middle of the month, you know you have a few adjustments to make.
Just Track It!
The only thing you can do wrong is to not track your spending at all. Pick one of the methods above, or create your own system using techniques from each. Just as with budgeting, you’ll need to experiment to find what works best for you.
Set aside 30 minutes or so this week to give it some thought, and jump in! The sooner you start tracking your spending, the sooner you’ll benefit.
How do you track your spending? Do you like using paper and pen, an automatic system, a cash envelope system,or do you use a hybrid method? What’s worked for you, what hasn’t, and why? Any other advice you’d give to people getting started with tracking their spending?