Why is it important to track your spending? Let us count the ways:
It can help you set and meet your goals. It can give you more day-to-day control. It can boost your ability to put together a budget you’ll stick to. And it can reinforce your priorities while helping you beat down bad habits.
No matter where you are in life—whether you’re saving for your first house or hoping to retire soon—it’s important to know where your money is going. But keeping track of expenses from day to day can be kind of a drag, which is why so many people give up once they start, or never begin a budget at all.
According to a 2019 Debt.com poll , most Americans (93%) think everyone should follow a household budget—but only 67% actually do it themselves.
The trick to sticking to it, of course, is to find the money monitoring strategy that works best for you—and there are several to choose from, including:
Auditing Account Balances
This strategy is all about knowing your net worth, which in this context is the combined total of investments (money in a 401(k), IRA, or other retirement account, as well as taxable investment accounts) and cash balances (checking and savings, etc.), minus any debt (student loans, credit card bills, car payments). If there’s an increase, you made more than you spent. If there’s a decrease, you spent more than you made.
If you keep track for a few months or a year, and trends may pop up that could be useful for future planning. What this method won’t do is help you become more mindful of your day-to-day spending and saving.
Pros: It’s pretty easy, and it can be done just once a month to get an overview of how things are going. Knowing your net worth can help you monitor your progress toward financial goals and serve as motivation for maintaining and improving your efforts.
Cons: It can be tough to get any real insight into mistakes that are being made—or to pump the brakes in time to prevent a problem. And though it’s good to have an idea of how investment accounts are doing over time, a 401(k) or IRA doesn’t usually have any connection to day-to-day budgeting decisions, and including them can cloud the picture.
Using an Envelope System
This method has been around for decades (at least), and some savers swear by it—especially those who prefer using cash for everything. It helps to have an overall budget in place and then determine categories for discretionary spending (the money left over after the bills are all paid and money goes into savings). Those categories could include groceries, entertainment and dining out, wardrobe, gas or cab fare, household items, gifts, personal care, etc.
Each category gets its own envelope (or section in an accordion folder), with a designated amount of cash that’s meant to last the month or until the next paycheck. (For example: If the budget designates $400 a month for groceries, a person who’s paid monthly could put in the entire $400 on payday. A person paid twice a month could put in $200 each payday. And a person paid weekly could put in $100 each payday.)
When the envelope is empty, there’s no more spending in that category. If there’s money left over at the end of the month, it can go into savings or toward the next month’s expenses.
Pros: It’s a simple strategy to follow if expenses are fairly stable. And there is some flexibility. You can switch things up from month to month depending on current needs. It’s also extremely visual—when the money is gone, it’s gone.
Cons: It takes discipline. With all that cash on hand, it can be tempting to take out money with the idea that you’ll pay it back for a quick Target run or takeout pizza. Plus, it means no purchases with PayPal or plastic—credit or debit—which isn’t feasible with online shopping or even with some brick and mortar businesses anymore.
Like it or not, the world is moving away from using cash, not toward it. Going cash-centric also can be a problem for those who count on getting credit card points. And unless they’re in a safe, those envelopes may be vulnerable to sticky-fingered outsiders.
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Putting It Down On Paper
To really get down to the nitty gritty of what you’re spending each day, it can help to record every penny you put out. Some fans of this system carry a small notebook and pencil in each purchase as they go. (There are also log books made for this purpose online.)
Others tap the info into their phone. Or they hold on to every receipt, including ATM receipts, and jot it all down at the end of the day.
The point is to track every expense to see where the money is going—but also to determine if it could be better spent somewhere else. How many lattes are you really drinking? How many pairs of shoes did you buy last month? And is that a priority in life or a behavior that could be curbed to make room for something else?
Organization can be key to success with this strategy. If you were the kid whose backpack and binders were always overflowing with crumpled papers, this method might not be for you.
And you may want to move the day’s receipts from your pockets or purse to a folder so you can check them against bank and credit card statements at the end of the month.
Pros: The beauty of this strategy is that it’s in real-time. If you aren’t happy with how you’re doing, you can make changes to your spending right away. And like a dieter who keeps a food log, it can become clear pretty quickly how you can cut the fat.
Cons: This is another strategy that may require some self-control, and it could take a while to develop the habit of writing down every single expense. It’s also time-consuming. Even if you’re willing to take a beat every time you leave a store or restaurant, are your friends, co-workers, or kids going to wait patiently as you pencil in purchases? It might be something to try for a month or so, to get some usable intel and learn how to keep track of expenses, but it could be a difficult effort to sustain.
Setting Up a Spreadsheet
If the thought of scribbling every single expense into a little notebook is giving you finger cramps, a spending spreadsheet might be a better option.
You can still go granular and see how you’re spending, but you also may be able to download some of the information from online banking and credit card sites instead of entering it all yourself. And the spreadsheet program does the calculating for you.
To broaden the view of your finances, you can include regular household bills, such as rent, utilities, car payments, etc., which can aid in evaluating your budget and any possible cost-cutting measures. You can also track your savings and investments.
There are pre-built free and low-cost budget spreadsheets available on the internet, and most can be edited to suit the user’s needs. In order to stick strictly to personal spending, you may want to create your own. Or, if the tabs and labels on a spreadsheet are too intimidating, you could try a worksheet instead.
Pros: Depending on your technical skills, you can DIY a spreadsheet without much effort. Tracking the information over time can help with budget revisions. And the data can be turned into charts and graphs to share with your partner, your whole family, or a financial professional.
Cons: Although it probably isn’t as tedious as writing everything down in a little notebook, if you have to manually enter data into a spreadsheet, the process can become time-consuming. And there may not always be a computer or tablet on hand when you want to record or look at the data.
Using an App
Apps, in general, are designed to keep users constantly connected to whatever it is they need or want: photos, friends, music, news, or, in this case, personal finance.
The right app can offer the best of all the tracking strategies listed above—a big-picture look at your account balances, a disciplined approach to discretionary expenses, a real-time relationship with your daily spending, and data you can analyze and share. All in the palm of your hand.
Finding one app that does everything in a way that works for the individual user isn’t always easy, but the financial industry is working on it , and the technology keeps evolving.
Some apps are set up to automatically categorize transactions according to an individual’s budget and show how much was spent in each category for the month so far. Monitoring expenses in this way can help you see where you might be overspending and keep you accountable to your goals. Some apps also can help you set those goals.
For example, the SoFi Relay app can connect all your accounts on a mobile dashboard, so your finances are always at your fingertips. You can keep tabs on your cash flow—and the app lets you know how much was spent, where it was spent, and how that lines up with your budget. At the same time, and at no cost, you can keep an eye on your investment money—but not in a way that confuses those dollars with the day-to-day bottom line.
Tracking Your Money With SoFi Money
Another way to easily track your spending is with SoFi Money®, a cash management account. In the SoFi app you’ll be able to see your weekly spending within the dashboard, that way you don’t have to use a pen and paper to keep track.
The best method for tracking spending is the one you’ll use—and keep using. Since there really is no right or wrong way to go, you may want to try different strategies until you find one that can help you achieve your goals while still enjoying your life from day to day.
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