Tracking your expenses is a skill you will need for the rest of your life, so the sooner you figure out which method works best for you, the sooner you’ll be on your way to building wealth.
A change in circumstances like: developing a health problem, moving to a new home or having a baby can cause your budget to change drastically. When changes like these occur it’s necessary to re-evaluate your budget. Even if things are more or less the same, sometimes we fall back into the same bad spending habits, so it’s a good idea to track your spending regularly. Some find it is best to track their expenses for one month every year.
At the end of each day take a few minutes to record everything you have spent that day. Don’t leave anything out, even little expenses. The only way you will be able to identify spending trends that are harming your finances, is by including everything. You might be surprised at how much you spend at the vending machine in the break room in one month.
You can go old-school and record your data in a note book with pencil and paper. If you love excel you can create your own spread sheet. Another method is to use little or no cash for one month, then consult your debit card records. (Be careful with this last method, as some people trend to spend more when they don’t physically see that there is less money in their wallet after each transaction.) There are also some great apps out there that simplify the process.
Once you’ve gathered this information, categorize each purchase. Categories can include: food, water & energy bills, clothes, entertainment and well, you get the idea. If you’re using excel you can use the “Filter” function on the Home tab to see how much you’ve spent in each category.
Now the moment of truth as arrived. It’s time to analyze in which categories you can cut down spending.