the nitty gritty of tracking spending

March 3rd, 2009

The Nitty Gritty Of Tracking Spending

Tracking your spending is a very simple yet complex process.  On the surface, it seems straightforward – keep track of everything that goes in and out of your household relating to money.  But because of the constant attention to detail that it requires, it can seem like an overwhelming task.

I have worked out a method that I use which works for me – but my method is not, by far, the only method.  I’m going to explain what I choose to do and why, but also look at some alternative scenarios that may fit your personality and lifestyle better.  The important thing is to find the method that works for you – no one method is better than another, some just work better for specific people than others.

There are some elements of tracking spending that are common to any system – a way/place to track the spending, an understanding of what types of spending you do (cash, debit, credit, or a combination), and a method to record these transactions, be it manually or automatically.   The simplest (but most labor intensive) way to track spending is to simply have a notebook or spreadsheet and record every transaction as you do it.  This is the system that appeals to me, however, I’ve made it a little more technologically efficient.  I do almost exclusively debit card transactions as far as spending goes, and I use a spreadsheet for a program called PearBudget as the place to record all my transactions.  I collect all my receipts into an envelope by my computer, and then a few times a week I record transactions manually into the spreadsheet.  The spreadsheet is organized by month and into categories I choose, and I record transactions into the appropriate column based on type.  The spreadsheet does all the math, and keeps track of the totals for each category I preset as well as what I set as my monthly budget for each category.  For me, this is a combined budgeting and tracking tool and it works well.    I’ve also written some tips and tricks I use to optimize this particular spreadsheet for my needs here.

If manually recording transactions is not for you, there are many different software options that will download your transactions for you.   This simplifies things because your “collection” and “recording” process of information is done for you by your bank and/or credit cards.  One of the ones I have tried and liked is Quicken, but there are many others (one of my friends swears by mint.com as simplifying and steamlining his whole financial life).  Once the program has your financial information (banks, credit cards, etc) it can download your transactions and in many cases tag them as to categories as well.  Then you just need to review information and add in any transactions that may not be downloaded (such as cash ones or checks written or received).

If you use cash almost exclusively or a large percentage of the time, automatically downloading transactions may not work for you and you may want to use a manual method.  Automatically downloading your transactions lends itself to a credit or debit situation, because your transactions are already digitally recorded.  I, however, choose to manually record transactions even though the vast majority of my transactions are from or to my bank account.  For me, manually entering receipts makes me more connected to what I spend.  I basically have to think about every purchase twice – when I make it, and then again when I record it.  this really hels me to keep my unnecessary spending in check, because I am doubly accountable.  However, not everyone needs that extra layer of accountability to themselves – as I said, it is what works for you.

Whatever your chosen method, tracking your spending is an ultimately rewarding process, as you learn what you spend and where, and what your choices about money say about your values.

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10 Responses to “The Nitty Gritty Of Tracking Spending”

  1. This is just what I need! I have been trying to figure out a tracking system that is not as labor intensive as the one that I am currently using.

    Thanks,
    Nate

  2. Well, at a glance, I’m voting for mint.com over PearBudget. A good budget has got to have a fancy pie chart, at least. It’s all about the visuals.

  3. Pen and paper definitely work, and as you say doubles the pain which is a good thing. Unfortunately, as you know, if you get behind it’s a bear to catch up. Mint (and Yodlee) are at the other end of the spectrum with everything automated. So all’s recorded, but then you gotta actually look at the numbers. A nice benefit of Yodlee (?Mint) is that you can get emails and/or text msgs when it detects new expenses, bills, etc. That’s jarring, to say the least!
    Oh, another GOOD thing about keeping the actual receipts is to answer the proverbial question: “What in the world did I spend all that money on?” When I started scrutinizing grocery store receipts, it was pretty shocking.
    Thanks

  4. I would have to agree that tracking every expense is labor intensive and thankfully we live in a fairly modern world that allows for us to ease the workload.

    I have never used pearbudget before and I am downloading it now to give it a whirl. Currently I use a combination of mint.com and straight cash system.

  5. I don’t track my spending, per se, but since I live on a very limited budget and my income goes for only the essentials for daily living, I know pretty well where each penny goes. However, I did just go on a clothing spending spree at Ross and Savers while I was visiting family…something that is very unlike me, but quite fun, actually!

  6. I’ve used an Excel spreadsheet for the last 14 years to track my expenses. It forces me to confront every expenditure, but it’s more manual than your system. I may give PearBudget a try.

  7. I’ve tried, but I can’t. I don’t know if it’s a mental block, but I just haven’t been able to sit and do a budget. I know that I’d squeeze a few dollars more into my budget.

  8. It can be overwhelming to start. Actually the easiest to do is to sign up with Mint, Yodlee, Quicken Online, etc. Take maybe 30 minutes and enter the information on the account(s) you USE. That is a good start. The other thing, at the same time, is to just save all sales receipts (use a jar, your wallet/purse/ whatever, to stash them) and once a week or two, just look at the receipts and what has been posted at Mint, et al.
    The first step has then become an awareness of what you’ve spent. Controlling the spending is a huge leap from there, but won’t seem so formidable once you’re familiar with your spending habits.
    Just my 2 cents :-)

  9. I’d like to cast a vote for You need a Budget. I’ve been using it for 2 1/2 years and I got out of credit card debt in the first six months of using it, and I have been able to afford so many things that seemed out of reach before, like a trip to the UK to visit my parents for their 50th wedding anniversary last year without putting a cent of it on credit card debt. It’s very easy to use, has visuals, and tracks all your liquid accounts, and at any time you can see exactly what you have left in your budget categories. There is an enthusiastic and helpful user community as well at the forums on their site.

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