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How to Track Your Monthly Expenses: Step-by-Step Guide

By Rebecca Lake · July 26, 2023 · 12 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Track Your Monthly Expenses: Step-by-Step Guide

Many people aren’t quite sure where their cash goes. They know they have money flowing in and out but couldn’t tell you the details.

If you’re among that group, it can be a good thing to start tracking your monthly expenses. Doing so can put you in control of your budget and make it easier to see where you might be wasting money.

When you don’t track expenses, you run the risk of overspending. What happens then? You can easily wind up short when it’s time to pay monthly bills and relying on high-interest debt to tide you over.

Getting into the habit of tracking income and expenses can help you improve your financial health so that you’re not guessing about where your money goes. If you’re ready to learn how to keep track of expenses, these tips can help.

Check out our Money Management Guide.

This article is from SoFi’s guide on how to manage your money, where you can learn basic money management tips and strategies.


money management guide for beginners

6 Steps to Tracking Your Monthly Expenses

1. Know Your Starting Point

In order to get a handle on expense tracking, you first need to know where you stand financially. That includes knowing:

•  How much you typically spend each month in total

•  What part of your spending goes toward fixed vs. variable expenses

•  How much of your income goes to debt repayment

•  What you have set aside in savings.

Calculating your personal net worth can be a good way to gauge whether your spending habits are healthy or harmful. Your net worth is the difference between what you owe, or your total debts, and what you own, or your assets.

You can use an online net worth calculator to find your number. If the number is positive, that means you have more assets than debt. That’s a good thing, as it suggests that you know how to keep spending in check and save money.

If your net worth is negative, on the other hand, that means your debts outweigh your savings. If most of your debt is owed to credit cards, that could be a sign that you need to rethink your spending habits and how you track expenses.

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2. Categorize Spending and Expenses

Once you’ve assessed your financial situation as a whole, it’s time to start categorizing the different ways you spend money each month. The 50/30/20 rule is a good way to do that. This budgeting rule suggests grouping spending into three pots: needs, wants, and savings and debt.

Needs

Needs include anything that you have to spend money on to maintain a basic standard of living. Using the 50/30/20 budget, 50% of your budget would go to needs.

Examples of needs include:

•  Housing

•  Utilities

•  Food

•  Healthcare

•  Insurance.

This category can include a mix of fixed and variable expenses. Fixed expenses stay the same month to month; variable expenses can increase or decrease. For example, your rent or mortgage payment is likely fixed since you pay the same amount all the time. But your utility bills can be variable if you pay more in winter and summer, but less in spring and fall.

A good rule of thumb for housing is to spend no more than 30% of your income on rent or mortgage payments. If you’re spending more than that, you may want to consider ways to reduce housing costs. If you own, for example, then you might refinance your mortgage if you can get a lower rate or downsize to a smaller home. Renters might consider taking on a roommate or two or moving to an area with a lower cost of living.

Wants

Wants are things you spend money on but don’t necessarily need to survive. This section accounts for 30% of spending under the 50/30/20 rule.

Examples of wants in a line-item budget can include:

•  New clothes that aren’t really needed

•  Travel

•  Dining out

•  Hobbies and recreation

•  Entertainment

•  Spa or salon visits.

The wants section of your budget is often where you can make the biggest cuts, since these are things you don’t need to spend money on.

Savings and Debt

The remaining 20% in the 50/30/20 budget is dedicated to saving and paying down debt. You could split it equally, and devote 10% to saving and 10% to debt. Or you might divide it differently if you’re prioritizing one financial goal over another.

Some of the things you might save money for in your budget include:

•  Emergency funds

•  Short-term goals, such as a vacation or new furniture

•  Longer-term goals, like the down payment on a house

•  Sinking funds

•  College planning

•  Retirement.

Financial experts often recommend saving 10% to 15% of your income for retirement alone, so you might need to reevaluate how much you’re setting aside for that goal. Increasing 401(k) contributions can help you get closer to that target if you’re not there yet. You may also consider supplementing your workplace plan with an Individual Retirement Account (IRA).

On the debt side of the equation you might have student loans, credit cards, car loans, or other debts. How you choose to pay them down can depend on how much money you have to work with and what’s most important to you. The debt snowball method, for example, can help you pay off debts from smallest balance to highest. Meanwhile, the debt avalanche has you pay off debts based on the highest APR to lowest.

Recommended: What Are the Average Monthly Expenses for One Person?

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3. Prioritize and Automate

Prioritizing monthly expenses means deciding what your money will go to first. It’s logical to start with monthly bills and basic living expenses, then budget for everything else. The ‘everything else’ includes your wants, savings goals, and debt repayment. If you’re following the 50/30/20 budget, then half of your income will go to those expenses.

Automating your finances can be a simple way to ensure that monthly bills get paid first. You can also automate other expenses that you pay regularly, including debt and transfers to savings.

Some of the bill payments you might choose to automate include:

•  Mortgage or rent payments

•  Utilities

•  Cell phone and internet bills

•  Car insurance

•  Student loan payments

•  Credit card bill payments

•  Transfers to your emergency fund

•  IRA contributions.

The more you can automate, the easier paying and tracking expenses can become. If you have trouble keeping up with bill due dates, you can set up reminders to alert you when those payments are scheduled to come out of your bank account.

4. Set Up a Spreadsheet

If you’re a visual learner, you might benefit from using a spreadsheet to track monthly income and expenses in one place. A spreadsheet might work well for you if you get paid weekly or biweekly and want to break down your expenses by week. That way, you can easily see when monthly bills are due and check them off as you pay them.

Budgeting spreadsheets are great because they can do the calculations for you to show you how much you’ve spent at any given point in the month and how much room you have remaining in your budget. Depending on where you bank or have credit card accounts, you may be able to see that information from your accounts automatically so that you don’t have to input the numbers manually.

5. Use an App

Apps are another option for tracking expenses each month. When you download a budgeting app or expense tracking app, you can link it to your bank accounts and credit card accounts. The app then pulls transaction data from your accounts periodically so that you can see how much you’ve spent right on your screen in one simple place; no toggling back and forth.

Some apps even allow you to tag or categorize expenses and create graphs or charts so that you have a visual representation of where your money is going each month.

You might use an app if you prefer a simplified approach to expense tracking, since the app does the work for you. The only drawback is that apps are not equipped to track spending when you pay with cash. So you’ll still have to enter those expenses yourself; otherwise, you could end up with inaccurate calculations of how much you’ve spent.

6. Track Your Money With Your Bank’s Help

Another option as you monitor your money habits is to track spending with financial insights. You don’t need to set up a spreadsheet or download a specific budgeting app. Instead, your back can help you track and categorize all of your expenses when you log into your account.

For instance, SoFi can help you to:

•  Connect financial accounts in a personal dashboard

•  View and track expenses

•  Monitor your credit scores

•  Create a budget plan

•  Track retirement savings and other money goals

•  Review your debt situation.

Financial insights like these can help you to get a comprehensive snapshot of your money situation in one place. It’s free to use, which is a plus, and it’s always there for you whenever you want to log in and see what you’re spending or how much you’re saving. This kind of intel can keep you on track and en route to reaching your financial goals.

Why Is Tracking Your Spending Important for Financial Management?

Knowing how to track spending is a good thing when it comes to managing money. Here are some of the ways that maintaining a monthly expenses list can benefit you financially.

•  Keeping track of expenses can help you make a budget if your spending is consistent from month to month.

•  Monitoring personal expenses can help you pinpoint areas in your budget where you might be wasting money, so you can cut back on spending if necessary.

•  It’s easier to keep up with monthly bills and due dates when you’re paying attention to expenses and wrangling your budget.

•  If you share certain costs with a spouse, significant other, or roommate, tracking expenses can ensure that both of you are contributing what you need to in order to pay the bills.

•  Tracking spending can help you work toward your financial goals; it can help you make informed decisions about where your money should or shouldn’t go.

Most importantly, keeping track of expenses can give you a sense of control over your money. You can feel like you’re telling your money what to do, instead of it being the other way around.

Next, learn some of the best strategies for tracking your monthly expenses.

How Often Should You Review Your Spending?

It’s a good idea to review your spending regularly. Doing so can help you see how your spending habits may have changed (has what was previously a once a week takeout habit become an every other day occurrence?) or how essential expenses might increase or decrease over time.

In terms of how often you should review spending, you could do it on a monthly basis when you make your new budget. You can look at how your spending might be trending and where you spent the most money during the previous month, then use that as a guide for deciding what to allocate to different spending categories for the next month.

You could also review spending weekly if you do weekly budget check-ins. That might make sense if you get paid weekly or you just prefer to glance at your spending habits more often.

At the bare minimum, it’s a good idea to review your spending on a quarterly to yearly basis, especially if you’ve noticed that your expenses or debt seem to be creeping up.

Recommended: How to Switch Banks

Avoid Common Spending Tracking Mistakes

When it comes to how to keep track of expenses, there are some do’s and don’ts to keep in mind. We’ve covered most of the do’s here, so now let’s look at the biggest mistakes to avoid as you track monthly spending.

•  Don’t choose an expense tracking system that doesn’t work for you. If you’re not a spreadsheet person, for example, don’t feel like you have to force yourself to embrace them.

•  Don’t forget to track monthly spending when you pay cash. It’s easy to track expenses with a debit card or credit card, but you run the risk of letting cash expenses slip through the cracks if you’re not adding them into your budget.

•  Don’t put your expenses in the wrong categories. It’s all too easy to categorize a daily cappuccino as a need if it’s your coping mechanism for getting through a rough day at work. But the reality is that it’s more of a want, and that’s where it should go in your budget.

💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

The Takeaway

Tracking expenses can lead to better financial health and having the right bank account can make it easier. Finding a method that works for you, being clear about categories, and reviewing regularly are all important steps to take when keeping tabs on your expenses.

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FAQ

Why is tracking spending important for financial management?

Tracking spending allows you to see where your money goes and where you might be wasting money each month. When you track monthly spending regularly, it becomes easier to make a realistic budget so that you can spend and save wisely, as well as work toward other financial goals.

How often should I review my spending?

Reviewing spending is something you do monthly or weekly, depending on how often you plan your budget. For instance, you may choose to review monthly expenses at the beginning or end of the month if that’s when you make your budget. Or you might schedule weekly spending reviews if that’s how often you get paid.

How can I categorize my expenses to get a better understanding of my spending habits?

Separating monthly expenses into essential and non-essential categories is a good place to start when tracking your spending. Essential expenses, or needs, are ones you need to pay to maintain a basic standard of living. Non-essential expenses, or wants, represent everything else that you spend money on, which is where you may be able to make some big budget cuts.

What are some common mistakes people make when tracking their spending?

Some of the most common mistakes people make when they track spending include using the wrong budgeting system to manage monthly expenses, forgetting to include expenses paid in cash, and putting expenses into the wrong budget categories. Of course, the biggest mistake you can make when it comes to tracking spending is not doing it at all.


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