How to Budget

April 3, 2020

5 Ways to Track Your Expenses in Your Budget

By Priya

April 3, 2020

Tracking your expenses is the cornerstone of any good budget. It should be the first step you take before creating your very first budget. In fact, it’s the best budgeting advice I’ve ever gotten and I’ve been tracking my expenses literally since I was a child. Expense tracking will allow you to analyse your spending every month. It builds awareness as to where your money is actually going.

There’s no rule as to how you should be tracking your expenses – what’s important is that you do it. Here are some of the main ways to track your expenses depending on how you make your payments.

Before we get started, let’s discuss tracking transfers between accounts and withdrawals of cash. These transactions should be recorded because they impact your available bank balance. However, be careful not to include them in your expense categories until the money is actually spent. There is a difference between a movement of funds into or out of your accounts and between your accounts.

Track your expenses manually on paper

Good for: cash spenders, credit or debit card users, those who make online payments.

This is how I choose to track my expenses. All my expenses are paid either online or with a card. I very rarely use cash. When I get home, I just open my banking apps and check my credit card statements. If you’re doing this every few days, it doesn’t really take more than 10 minutes.

I usually don’t keep receipts (unless I’ve purchased something that might need to be returned). But if you’re a cash spender, hold on to your receipts until you’re able to track your expenses.

How I track my expenses

I recommend manually tracking your expenses on paper. Your brain behaves differently when you’re writing things out by hand. It starts processing what it’s writing. Tracking your expenses manually forces you to confront your spending and think about where your money is going. It shows you how small expenses here and there quickly add up.

I treat my expense trackers like bank statements. I’ve got separate tracking sheets for each account and credit card. All deposits and withdrawals from each account and card are tracked separately. I also keep an updated account balance down the side. This is a great way to see if you’ve tracked all transactions at the end of the tracking period. If the closing balance of your accounts equals the closing balance on your expense trackers, you haven’t missed anything.

I also do a weekly budget check-in to see how much I’ve spent in each variable expense category every week. This helps me see how much I’ve spent and how much I have left.

Checking in regularly throughout the month keeps me on track and helps me stay within budget. If I’m about to go over in any of my categories, I can adjust my budget and my behaviour. I also colour code each of my expense categories using highlighters, which makes it easier to total add up.

If you really don’t want to use paper, you can still track your expenses manually in a spreadsheet. Set it up to automatically calculate your remaining balance and total up your expense categories.

Use the cash envelope method

Good for: cash spenders

Not good for: credit or debit card users, those who make online payments.

I don’t like using cash and I don’t recommend it as a long term solution for financial independence and freedom. However, the cash envelope method of budgeting is a popular one and one that has been successful for many people. If you’re a cash spender, try tracking the remaining cash in your envelopes at the end of the tracking period. For example, if you started with $200 in your grocery envelope and ended with $50, you’ve spent $150 on groceries. This is an easier way of tracking expenses than collecting receipts for every individual transaction.

This becomes more complicated, however, if you’re prone to borrowing cash from your other envelopes. If that’s the case, then you’d be better off manually tracking your expenses. As noted above, though, you’ll need to save your receipts until you’ve had a chance to track your expenses.

Manually track expenses in an app or program

Good for: cash spenders, credit or debit card users, those who make online payments.

For those that can’t stand the idea of tracking on paper or in a spreadsheet, use an app. You can log expenses while you’re out and about and do away with unneeded receipts.

Tracking expenses in an app is great if you can’t fathom the idea of sitting with a calculator to add up their expenses. The app will do all the hard work you’d rather avoid. I personally think everyone should add their expenses up manually to see how small amounts here and there add up. But I’d recommend tracking your expenses electronically instead of just give up. Not liking maths or not being bothered isn’t a good enough excuse.

Expense tracking apps will also tell you how much money you have left in each of your budget categories. This will help you stay within budget on your spending.

Automatically track expenses in an app or program

Good for: credit or debit card users, those who make online payments.

Not good for: cash spenders.

This method of tracking is similar to the above, but probably requires the least amount of effort possible. There are many budgeting or expense tracking apps that you can set up to read your bank statements. They’ll automatically track and categorise your expenses. Perfect if you’re lazy (like me) or short on time (also like me). Some banking institutions also have this feature built into their apps.

Good systems will learn how to categorise regular transactions that tend to repeat every so often. However, that doesn’t mean that you don’t need to check up on your expense tracking. I would still be checking my app at least every few days to make sure transactions have been categorised correctly. I’d also check to see how much I have left in each of my budget categories.

It should go without saying that if you choose this method of tracking your expenses, please do your research. Make sure you’re using a program with bank-level security to protect your data and your money. Often, these programs are only authorised to read your transaction history and shouldn’t be authorised to make payments.

Keep in mind that this method will not work for any cash spending. Your transactions will only show cash being withdrawn from your accounts. It has no way of knowing where you’re actually spending that money.

Review financial statements at the end of the month

Good for: credit or debit card users, those who make online payments.

Not good for: cash spenders.

The last method of tracking expenses is to take a highlighter to your bank and credit card statements.

This is my least preferred method of tracking expense. You can’t see how much you’re spending and how much you have left. This increases the risk of going over budget in some or all of your budget categories.

It’s a reactive way of tracking expenses. Also, it doesn’t allow you to make adjustments to your budget or your behaviour in real-time.

Tracking your expense is the cornerstone to a budget you can stick to. Not only does it allow you to see where your money is actually going, but you can also change your behaviour to align your spending with your financial goals. And it doesn’t have to be that hard. There are some great easy and simple ways to track your expenses.

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