Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
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If you started at the beginning of the blog then by now you know the key to financial success is to spend less than you earn. If not, check out that post here. Spending less than you earn sounds easy, and in many respects it is, but if it is so easy, why isn’t everyone doing it? Well, it is because most people don’t take the first step. Many people will tell you that to take control of your finances you need to create a budget. While budgets are awesome, they usually go the way of the fad diet, so that isn’t the first step. What is the first step I hear you ask? To simply track your spending.
That may be surprising, but there is no point in creating a budget if you don’t know what you spend on food each month. So, how do you track your spending? I’m glad you asked. It depends on who you are.
Three ways to track your spending
1 The old fashioned way. This is my personal favorite. You get a designated notebook (we use a graphing paper notebook because it is easy to create a chart) and you put that notebook somewhere that you will see it often. Then you create a category for each major group you spend money on (e.g. Food, Bills, Household, Entertainment, Golfing Supplies, Whatever you spend money on). We’ve simplified ours to just three categories, but you can use however many you’d like. Don’t forget to include an income category so you know how much money you have to spend as well.
The key to making this strategy work is to update it often. If you let receipts pile up then sit down to do it at the end of the month it will take an hour, you are going to hate it, and you will stop. But if you just record each receipt as it comes in then it only takes two minutes maximum and at the end of the month you will know how much you spent on each category. I think this method is the best because it just feels more noticeable to physically write out how much you are spending, so you will think twice before spending any money. (Remember if the goal is to spend less than you earn that is a good thing). So if you like using paper and like to work things out yourself then this method is for you.
2 The manual entry method. This can take a couple of formats, but basically you either create a spreadsheet (if you’re into that kind of thing) or use a software that allows you to put in expenses manually (like this creative option or this more sophisticated software). Then it works exactly like the old fashioned way. Each time you spend money you input it into your spreadsheet or software. Once again, you need to do this regularly or it will become a chore at the end of the month that will make you despise it.
The advantages to doing this is that you can have your spending tracker right on your phone so that you can input spending as you do it. It also can be backed up online so your kids won’t draw all over your spending tracker. Not that that has ever happened to me… So if you like the idea of putting things in yourself and how easy it is to customize, but don’t like old fashioned pen and paper, then this method is for you.
3 Use spending tracking software. Spending tracking software are apps that attach to your bank, credit card, investing and other accounts (for examples check out this list). Every time you spend money or make money it automatically inputs this into your spending tracker. The ease of use is clearly the advantage of this method.
There are a couple things to consider with this method. First, there is nothing that forces you to look at this each day, week or month. This means you need to remember to review it to understand your spending. Second, it won’t record cash transactions or any account that isn’t attached to the software. So if those things don’t bother you, and you really like how easy it sounds, then this is the method for you.
Wrapping it Up
So what method should you use? Honestly, it doesn’t matter as long as it works for you and you start tracking your spending immediately. Just start right now. It doesn’t matter if it is the middle of the month, get in the habit today of tracking your spending. The sooner you do that the sooner you can intentionally spend less than you earn and the sooner you can be on your way to financial success.
What method do you think will work best for you? What challenges do you see with tracking your spending? What success have you had? Share your answers in the comments.
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