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If you’re trying to stick to a budget, but struggling, tracking expenses can help you stay on top of how much you’re spending and what you’re spending it on. When you know how to effectively track your expenses, you’re essentially putting your budget into motion.
From setting up a thought-out budget to partnering with a friend, here are 9 tips and tricks to help you start tracking your expenses.
1. Make a Detailed and Realistic Budget
Before you start tracking expenses, you will want to make a thorough budget that will fit into your life. This means your budget shouldn’t be unrealistically strict, but it should give you room to cut back on spending so you can bulk up your savings.
Good to Know: A budget is a useful tool that will help guide you so you can have a stable financial future.
Pro Tip: You should approach building a budget with a positive attitude. A negative mindset will act as a roadblock to success because a few weeks or months in, you won’t want to stick with it.
When you first make your budget, take the opportunity to identify areas in your finances where there is room for improvement. This will help you make goals so you know how you want your finances to grow year to year.
Where Do You Start? Not sure where to start with your budget? Consider doing these three things:
- Choose a proven strategy. From the envelop system to the classic 50/30/20 plan, do your research about the simplest and most popular budgeting plans and choose which one is best for you.
- Know your income. This might seem obvious, but it’s important to know how much you’re making after taxes so you can plan accordingly.
- Automated banking. This is especially helpful when it comes to savings. Having direct deposit for your paycheck and then having a portion of that automatically moved into a savings account will remove some of the temptation to shop.
Just remember that there’s no harm in reevaluating your budget every few months if something isn’t working. That way you can remain flexible and maintain a financial plan that works for your lifestyle.
2. Use an Expense Tracking App
With online shopping quickly taking over the retail sector, you might see technology as the start of all your financial woes. But with an expense tracking app you can use technology to your advantage.
Good to Know: Most budgeting apps seamlessly integrate into your life by working with your budget to separate your money into savings and spendable income. These figures are based off your current income and typical monthly payments. However, the app can’t do all of the work for you. You will have to put in some leg work yourself. That means logging your monthly income, every purchase you make, and putting the app’s suggestions into action.
What Apps Should You Use?
Apps can be especially useful if you do not have a consistent salary month to month.
- With Metromile, you can easily check mileage on your car drives every week. You will feed your data to the Metromile app, so you can get quick information on various check engine codes, and how to reduce your mileage. If you don’t drive at all in a given month, you’ll only pay the monthly fee.
- For entrepreneurs and freelancers, try downloading Hurdlr. By tracking all of your income streams as well as your mileage, expenses, and tax deductions, Hurdlr lets you know how much money you’re making before and after tax. This makes it easy to budget your real income and you can tailor your spending to match. Hurdlr has partnered with Uber and Upwork so that thousands of freelancers can have their income automatically tracked and put into their budget. The app will also allow you to connect your external investment accounts to Hurdlr’s API, offering you a more transparent breakdown of your revenue and tax obligations.
- Another great option for millennials is Wally. This app focuses especially on outgoing expenses and uses artificial intelligence to provide you feedback and advice for how to change your spending habits.
3. Track Every Expense for at Least a Week
This is a good exercise to try before you even organize your budget. By tracking expenses for a week you get an accurate outline of where your money goes each month. Budget plans rarely require you to write down every single penny spent. However, challenge yourself to keep a detailed ledger for a week or two—you might be surprised by what you discover.
Good to Know: It can be illuminating to learn how often you spend money and where it all goes. Those morning coffees will seem less like a harmless treat and more like a drain on your wallet. Once you have this information, you will likely have a new awareness of what spending you can cut back on and how little luxuries can fit into your budget.
Pro Tip: To do this effectively, you will want to carry a small notebook around everywhere with you. Ledgers are particularly useful when you divide them into several categories, such as food, utilities, rent, restaurants, and extra expenses (like clothes shopping or activities). If you continue using a ledger after you have organized your budget, these categories can be assigned a spending limit. Ledgers are a great way to consistently remind yourself throughout the day how much you’re spending, and how much is left in the budget. A visual and physical reminder will help you stick to your financial goals.
4. Set a Monthly (or Daily) Spending Limit
While you are tracking expenses, you’ll want to set spending limits for each budget category. Certain categories, like rent and utilities, will be easy because you won’t have a choice in the matter. Because these categories are already set, you will build your spending limits around these expenses.
Good to Know: When just beginning to use a budget, some people find it easiest to stick to only using cash. Ditching your debit card and only withdrawing a certain amount of cash at the beginning of each month or week can be an excellent strategy.
- By separating your cash into each category, you give yourself a visual indication of how much money you have left so that you know when you can’t afford to go out for lunch with friends or buy that new pair of jeans.
- Over time, if you find that you are consistently struggling to stick to a spending limit, ask your bank or credit card issuer to lower your spending limit. However, this can negatively impact your credit score so weigh the pros and cons before changing your credit limit.
- Keep in mind that these spending limits need to be realistic. If before you were buying coffee every morning and lunch break, it probably isn’t realistic to say you will never buy another latte. Instead, cut back to just one a day or a few a week.
If your limits are too strict, you could quickly get discouraged and give up on your budget altogether.
5. Check Your Credit and Debit Card Use
You should aim to check both your credit card and checking accounts at least once a week, if not more often. Getting into the habit of checking your accounts will help you stick to your budget since you will be reminded of how much you’ve spent that week.
Pro: Not only will you stay on top of your finances, but you will also catch any fraud or suspicious activity before it can progress further. This gives you a better chance of recovering lost funds and having the bank quickly remedy any errors.
- If you check your accounts daily it will actually become less of a chore because there will be fewer transactions to look over.
- You will also be able to stay away from the dreaded overdraft and the fees that come with it. Overdraft fees are unexpected and costly, so there’s no room for them in your budget.
- This practice could have the added benefit of keeping you motivated.
Seeing where you’ve messed up in the past can motivate you to do better in the future. Or seeing your savings take off can show you that your budget is actually working and that your sacrifices haven’t been in vain. It can be hugely supportive to know that you’re on the right track and can lead to you save more in the coming months.
6. Organize Based on Needs vs. Wants
This seems simple enough, but separating all your expenses into these two categories before you start tracking expenses can help keep you saving money. If you are somebody who struggles with putting things into budgeting categories and sticking to them, you should consider following the 50/30/20 plan.
How Do You Do This?
First, you will need to list everything you typically buy in a month—or in a year, if you are feeling ambitious. This includes everything from toiletries like shampoo and toothpaste to filling up your car with fuel.
- From this list, you can start organizing the items into the two categories: wants and needs. This should be fairly straightforward and just requires a bit of time and common sense.
- From this list, you can begin organizing your 50/30/20 budget.
- The numbers represent percentages. So 50% of your income is allocated to needs, 30% to wants, and 20% to savings or paying off loans.
- After calculating your after-tax income, you can easily determine how much money will go into each category.
However, you shouldn’t assume that your costs are set in stone. It’s easy to cut back spending on ‘wants’ by shopping less often or scouting for sales. But it’s equally important to try to minimize how much you’re spending on ‘needs’. Just because you have to spend money on these things doesn’t mean you have to spend as much as you are.
Pro Tip: If you have been with the same broadband or car insurance provider, chances are your loyalty is being penalized with higher rates. See if switching providers will earn you a discount. Just threatening to leave your current provider could prompt them to lower your monthly payments.
7. Always Ask for a Receipt
This is a great strategy for tracking expenses. It’s easy to say ‘yes’ when a clerk asks if you want your receipt and they’re the only way to know exactly what you’ve spent if you predominantly use cash. Collect your receipts and write down every purchase in a ledger at the end of each day or week.
Pro Tip: When you go through your receipts, you can make a note of how each fits into your budget, or what spending needs to be trimmed in the next week. If you were able to put $200 in your savings account every month when you first started budgeting, but that amount has decreased to $150, it can be confusing.
That’s why keeping receipts is very useful for those who have been budgeting for a while and have slowly grown more laid back with their spending over time. Ultimately, it gives you an increased understanding of your spending habits.
Good to Know: Organizing and processing your receipts is a surprisingly quick task and can end up saving you lots of money.
If you have any purchases that you think may be tax deductible, keep hold of it long term. These should be bundled together and labelled so that you can take advantage of them when tax season rolls around.
8. Set Spending or Saving Goals
Setting yourself goals is an excellent way to stay motivated because you will be closely monitoring your progress until you reach those milestones.
Good to Know: Whether you want to put $2000 in your savings account by the end of the year or save up enough cash to remodel your bathroom, having a budgeting goal is a powerful tool to help you save and track expenses. However, goals should always be realistic. Otherwise, you might end up getting discouraged because you’ve removed all the little luxuries from your life, but your goal still seems impossibly far from being achieved.
You also shouldn’t set more than one saving and one spending goal at a time. That means you might want to decide to stop spending money on takeaway coffees and to save enough money each month to pay off your debts. But don’t add to these by saying you’ll stop eating out altogether and will save up enough for a deposit on a home.
Pro Tip: Having too many goals will get overwhelming and confusing. You want to make things as simple as possible for yourself. After you reach your goal, you might not want to set another one immediately. Instead, if you are setting large milestones, take a year or two off in between to relax and plan carefully for the future.
9. Use the Buddy System
Still finding tracking expenses tricky? Try the buddy system. Find a friend or two who is also trying to stick to a budget, and wants the moral support that comes with a group mentality. By reporting your spending to a friend, you’ll be held accountable for deviating from your budget.
Even better, if you share a similar lifestyle with your friends, you can swap money saving tips or promotion codes and sales at local shops or for online purchases. Using this information wisely can help you save money on both your needs and wants.
If your budgeting group starts to grow, try to keep it to close friends. While you want to be held accountable, you shouldn’t invite harsh or judgmental opinions, especially where your finances are concerned.
The best type of budgeting buddy is one who offers friendly support and solid money advice.
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