Saving money starts with tracking your expenses. It is easy to lose track of your expenses when you are not aware of them. It could be anything from a busy schedule to poor personal finance habits. Whatever it is, failing to track expenses leads to a lot of wastage.
In this article, we will be sharing with you 3 easy steps to track your expenses so you never have to fail at budgeting again. But before we jump into the steps let’s take a look at why it is important to track your expenses.
Importance of tracking expenses:
It doesn’t matter how big or small your income is, if you cannot keep track of it, you will never be able to save money. Here are some of the reasons why you should track your expenses:
1. Helps you avoid unnecessary expenses:
Keeping a record of your expenses helps you identify areas in which your money could be saved. For example, if you don’t know how much you spend eating out every month, it is easy to get carried away and end up spending more than necessary.
2. Helps you identify hidden costs:
It becomes easy for us to overlook expenses that we consider as ‘necessary’: You don’t realize how much of your income goes into these unnecessary costs until you write them down.
3. Helps you in debt elimination:
If you have debt like a loan or credit card bill, tracking your expenses will help you in creating a clear picture of where the money goes. This way you can eliminate wasteful spending and focus more on paying off your debt.
4. Helps you make smarter decisions:
Being aware of how much you spend every month will help you make smarter decisions when it comes to spending. You can easily plan your expenses and savings by knowing where your money is going. This way you’ll save more than before.
3 easy steps to track expenses
So, now that you know the importance of tracking your expenses let’s talk about the 3 easy steps that you can follow to keep a tab on your spending.
1. Identify your expenses and categorize them:
Start by creating a list of expenses in your home so you have an idea about where your money is going. You can use the categories given below or you can come up with categories that suit you best.
Necessities: These are monthly expenses which cannot be missed, e.g. rent, electricity bill, etc.
Groceries: This includes your daily and weekly household grocery shopping.
Household: This includes any maintenance and repairs that need to be done in the house.
Medical: This includes the cost of your medical bills, doctor’s visits, etc.
Transportation: Monthly transport costs including gas money, auto repairs, public transportation fees, etc.
Entertainment: This is where you can list down monthly entertainment expenses that are not necessary but still need to be budgeted e.g., movie tickets, eating out at restaurants, etc.
Expenses that are not fixed: These expenses include any unplanned or discretionary spending that can happen in a month e.g., buying new clothes for yourself, tickets to an event (concerts, sports matches), your favorite takeout meal, etc.
2. Create a budget according to your monthly income
Once you have your expense list ready, you can create your budget accordingly. Take a pen and notebook or open your spreadsheet software and create columns for each expense.
Your main priority should be to identify the necessities and include them in your budget first. This will help you create a monthly budget that is not very tight but still has goodies for savings here and there. You should also try to prioritize expenses that are not fixed so you can save enough money to cover these costs if they happen in a month.
3. Use apps to track your expenses
If you don’t want to go through the hassle of manually creating a list and working out a budget, there are apps designed just for this. These apps allow you to add your expenses and create budgets by tracking them automatically. They will categorize each expense into their respective category and give you an overall picture of where your money is going. Here are some apps you can use.
- Tiller
- YNAB
- Mint
- Wally
- Personal capital
Conclusion:
Once you have created a budget and begun tracking your expenses, you will be able to identify wasteful spending and reduce it. You’ll be saving more than you used to with the same amount of income. Make this a habit and you will never fail at budgeting again. Good luck!