This is part 1 in a series of 3 about budgeting and how to track expenses. The second post can be found here “Budgeting and How to Track Expenses Part 2” and the third can be found here “Budgeting and How to Track Expenses Part 3“. Before sharing ways to reduce your FAITH (food, apparel, insurance, transportation, and housing) expenses, we have to start at the beginning: how to track expenses, otherwise known as “spending.” While many consider this “budgeting” I like to simplify and call it what it is: keeping track of how much money is being spent.
How you track your spending is key to managing your expenses. If you don’t know how much you’re spending (and on what), you can’t easily make improvements. You can begin to track your spending today. Grab your bank statements, credit card statements, and check register and track your spending for the previous 6-months or 12-months. You can do this in a short period of time and see on what and where you’ve been spending your money.
Budgeting and how to track expenses
- Make it easy.
- Put expenses in buckets or categories the way they’re purchased.
- Don’t get hung up on details – yet.
- Automate, website, apps – later.
1. Make it easy to get the information: Tracking your expenses is so much easier if you have just one checking account and one credit card. Whatever you can do to consolidate your accounts will pay off big time. Not only will you have an easier time tracking your expenses with one checking account and one credit card but you will save money on your banking and credit card fees.
Bottom line: The easier it is to get to your spending information (whether it be bank statements, credit card statements or your check register) the easier it is to track and the more likely you are to actually track it.
2. Put expenses in buckets or categories the way they’re purchased: When you put things in categories based on how you buy them (say for example, groceries and cleaning supplies at the same store), it’s going to be that much easier to get the information to divide it into meaningful categories.
Bottom line: all spending has to be put in a category and it doesn’t necessarily matter which category it goes into as long as you’re consistent.
Remember, for this exercise you’re not itemizing your individual grocery bill. If you shop at Safeway, Target, Costco, and Trader Joe’s in a month, put the total of ALL of those receipts in your monthly FOOD category. It’s not worth the time to subtract out cleaning supplies or toilet paper from your FOOD category, remember, they have to go somewhere!
3. Don’t get hung up on details – yet: By limiting your expense categories to a few (but meaningful and useful), you can more easily and quickly get your arms around your spending, without getting all twisted up in the details. (It helps me to write down the categories so I can refer back to them.)
Because I like to keep things simple, I have limited our spending categories to 5 – FAITH (food, apparel, insurance, transportation, and housing).
Bottom line: Don’t break your categories down too small. The money spent has to go into a category.
4. Automate, website, apps – later: I can’t emphasize this enough, but do this process manually, first. Then, once you’ve come to a good understanding of what you are spending and where, you can look into seeing what applications might help speed the process. But, don’t confuse speedier with better. By using a website, software, etc., you may make the process “quicker” but at the expense of better understanding of your actual spending.
Bottom line: Get your hands a little dirty and get the benefits of seeing your spending close up, without the anesthetizing impact of some application getting in between.
The first step in managing your expenses is to track your spending. You can easily make improvements today and you don’t need fancy software to do it. Keep it simple and make your categories easy. Just remember FAITH and it will help when assigning expenses to categories.
How do you track your spending each month? Are you spending more than you’d like?
Go Gingham related links:
Just balance that checkbook! You can do it!
What does it mean to budget? Find out here
Frugal living is the key to saving
The problem with budgeting – yes, the problem!
How finances figure in frugality
Budgeting and how to track expenses – Part 2
Budgeting and how to track expenses – Part 3
Check out this article in The Wall Street Journal – “Seven Resolutions to Get your Nest Egg in Shape” by Anne Tergesen. Guess what’s number 1 on the list? Track spending.