If you grumble at the thought of budgeting, you’re not alone.
Four out of 10 Americans don’t maintain a budget, according to a 2019 Penny Hoarder financial literacy survey.
Despite the resistance, creating a budget is what most financial professionals recommend, said Holly Peterson, financial consultant and owner of Elite Retirement Strategies in Pocatello, Idaho. But if you really hate limiting your spending, let’s forget about budgeting for a minute and focus on expense tracking.
“By tracking their spending, people can see where they’re overspending or where certain financial problems are,” Peterson said. “For instance, you might realize that you should probably start packing a lunch from home instead of buying every day. But if you’re not confronted with how much money you’re spending each week or month on takeout, you might never feel the need to change.”
Seeing the actual numbers associated with how you spend money can be that catalyst for improving your financial life.
4 Ways to Track Your Spending
When it comes to tracking your spending, there’s a variety of methods you could use. None is necessarily better than the others. It all depends on your preferences and what works best for you.
As you go about recording your spending, ask yourself what you want to take away from the experience. Many people track their spending to figure out how much they typically spend on variable expenses such as clothing or entertainment. But that’s not the only reason to track your expenses.
Perhaps you want to have a better idea of how much you spend on needs versus wants. Maybe you’re trying to make an effort to buy from locally owned shops or minority-run businesses and you want to note which retailers get most of your dollars.
Your intentions can help guide how you track your spending.
Once you nail down why you’re tracking your expenses, here are four methods to go about doing it.
1. Create a Pen-and-Paper Spending Ledger
Keep a small notebook with you and jot down whenever you make a purchase throughout the day. The day-to-day record-keeping may seem tedious, but try your best to stay consistent.
“Everyone makes mistakes, and there might be days where you forget, but track every purchase, even if it’s an impulse buy, and keep up with your tracking,” Peterson said.
She said you may find yourself being less impulsive with your money now that you have to write everything down and hold yourself accountable for what you buy.
Kakeibo is a spending ledger rooted in Japanese tradition that incorporates mindfulness and journaling. You’re asked to reflect on the money you have available to spend, how you felt when you made each purchase and how you can improve your spending habits.
Creative types might want to track expenses with a bullet journal. Though it’s certainly not required, many bullet journal users incorporate color and design into their journal pages. Think: Color-coding your purchases by budget categories or to distinguishing between needs and wants.
If you’re tracking expenses over an extended period and want to keep tabs on other aspects of your financial life, consider including a spending ledger as part of a budget binder. Other elements you might want to include in your budget binder are a savings tracker, a debt tracker and a list of your financial goals.
2. Download an Expense Tracking App
Expense tracking apps take some of the work out of logging and categorizing your spending, especially if the app syncs to your bank account.
Most apps also provide you with charts, graphs and summaries to give you a better picture of your finances.
Some apps you might consider are:
3. Log Expenses into a Spreadsheet
Using a spreadsheet is another way to digitize your expense tracking efforts. Microsoft Excel and Google Sheets are two good options to work with. Take your spreadsheet everywhere you go by downloading the Excel app or Sheets app to your smartphone.
Utilize functions to automatically sum up spending in each budget category or to find the average of your electric bill over the past few months without having to pick up a calculator.
Excel and Sheets both offer templates for budgeting, or you can find free spreadsheet templates online.
4. Use a Budget Calendar
Track your spending on a calendar by writing down your purchases for each day that passes and making note of your upcoming bills.
You probably already use a calendar to keep track of appointments and events, so you don’t have to worry about buying something or learning a new system to begin tracking your spending this way.
You can also use your calendar to keep a running tab of your account balance so you know how much is available to spend.
What to Do After Tracking Your Spending
While tracking spending is a good first step to managing your money, you shouldn’t stop there.
After a few months of recording and reviewing what you buy (and making necessary changes), it’s time to — hold the groans — create a budget. Instead of feeling restrictive, however, your new budget should mirror your actual spending, making it easier to stay within the limits you set.
The reason many people dislike budgeting, Peterson said, is because they aren’t starting with realistic budgets.
“If you’ve never tracked your expenses, you may have no idea how expensive your lifestyle really is, so suddenly cutting down on everything feels painful — when in reality, you could just take a month or two to track your average daily spending and then figure out where there’s room for improvement,” she said.
Use your budget to prioritize what’s important to you — whether that’s buying organic groceries, going on regular road trips or saving for an early retirement.
“Tracking your spending is a great way to make sure that your long-term priorities are matching up with your everyday actions,” Peterson said.
Nicole Dow is a senior writer at The Penny Hoarder.