The first step in budgeting is to track your expenses. This can be done manually or via an app like Mint, but there are some things you should know before getting started.
The how to keep track of expenses in excel is a guide that will teach you how to track your expenses. This guide includes step by step instructions on how to do this.
To get the most out of your money, you need to know where it’s going, therefore knowing how to monitor expenditures is an important skill to master. Most individuals have a broad notion of how much they spend in each area, but when it comes down to dollars and cents, they couldn’t tell you how much they really spend in each category. This is due to the fact that many individuals underestimate the value of keeping track of their expenditures.
Tracking your expenditures not only puts you in charge of your finances, but it also offers you with a slew of other financial advantages you may not have considered. Continue reading to learn how to take control of your money and to discover all of the benefits of expenditure monitoring.
Why Is It Necessary to Keep Track of Expenses?
Keeping track of your expenditures may seem to be boring and pointless, yet it is the foundation of sound financial management. Without putting out the effort to monitor your expenditures, you will have no clear picture of your financial position, making it difficult to plan for the future and accomplish your objectives.
What Are the Benefits of Keeping Track of Your Expenses?
When it comes to keeping track of your expenditures, there are many benefits. The most essential one, though, is to understand where your money goes each month.
Brings about financial awareness
Taking the effort to write down every dollar you spend helps you become more conscious of your spending patterns by putting you in touch with your money.
When you spend without thinking about it, the costs pile up fast. What may start off as a few bucks here and there may rapidly add up to hundreds of dollars each year. You may not even be aware that you’re wasting money that might be better spent elsewhere in your budget.
Emphasizes Poor Spending Habits
Keeping track of your expenditures will enable you to immediately identify patterns in your spending and make good adjustments.
Unnecessary spending may take many forms. It can be as easy as overspending at the grocery store, ordering takeout when you could have cooked, overspending online, or even forgetting to cancel subscription services you don’t use very frequently. It all adds up, and it adds up fast. Tracking your expenditures will enable you to understand where your money is going and avoid any unnecessary spending, no matter how little.
Allows you to do more with less resources
You may think you won’t be able to get by on your present salary, but after you start monitoring your expenditures, you’ll be amazed at how much money you have. Many of us are losing a substantial part of our money to things we aren’t even aware of without even realizing it. Such costs may seem little at first, but they can quickly build up to a considerable amount of money in your yearly budget, and keeping track of them allows you to put that money back into your pocket and put it to better use in the future.
Assists You in Achieving Your Financial Objectives
Keeping track of your expenditures keeps you in touch with your money and helps you discover and eliminate unnecessary spending, making it much simpler to reach your long-term financial objectives – whatever they may be.
Though you may not realize it, even simple changes like foregoing morning coffee or bringing a lunch for the workplace may quickly add up to hundreds or thousands of dollars to your annual budget. The savings may be substantial, allowing you to take a pleasant vacation, cut years off your debt payments, retire early, or put a down payment on a house.
It would be virtually difficult to accomplish any of these goals without making an effort to monitor your expenditures and better manage your money. Taking charge of your money not only allows you to do this, but it also allows you to recognize the adjustments you need to make in order to reach where you want to go.
Unusual Expenses are Revealed
If you keep track of your expenditures on a regular basis, you’ll be far more likely to detect when something isn’t quite right.
Whether it’s a fraudulent credit card transaction or an extra charge on one of your monthly bills, keeping track of your expenditures can reveal any irregularities right away. This has a variety of advantages, including helping you save money and adding an additional layer of security against identity theft, which is regrettably prevalent and much simpler to deal with when caught early.
How Do I Keep Track of My Expenses?
Tracking your expenditures may be broken down into three simple stages. First and foremost, you must establish a budget that you can adhere to. The next step is to make a list of your expenditures and classify them. Finally, you must track your progress to verify that you are on pace to achieve your financial objectives.
Make a Financial Plan
It’s easy to make a budget; all you have to do is keep track of your monthly revenue. If you don’t have a stable income or aren’t salaried, take an average of a few months to create an approximate baseline from which to work. If your income fluctuates significantly from month to month, you may need to start by adding up all of your expenditures and working backwards to figure out how much your monthly cost of living is.
You’ll need to start documenting your monthly expenditures after you’ve decided on a fixed number for your monthly income. Begin with the basics, such as your rent or mortgage, monthly utilities, vehicle payment, insurance, and food, before going on to items like savings goals and entertainment spending. You may begin by examining a few months of your banking history and recording the figures; any variable expenditures should be put together and averaged out across a few months of data to get the most accurate figure.
You’ll need to balance the two figures once you’ve accounted for all of your revenue and expenditures. If you have any money left over after subtracting all of your expenditures from your monthly income, you’ll need to modify the categories in your budget until it zeroes out. This isn’t to say that you should blow the rest of your money on a lavish lifestyle. Remember that your savings, investments, and any debt repayments, as well as variable expenditures like monthly food and energy bills, are all part of your monthly expenses, all of which should be prioritized above adding to luxuries.
After you’ve done those three easy tasks, you’ll have a basic budget. It’s alright if you find this initial draft difficult to follow or doesn’t get you where you want to go with your objectives in a timely way. Budgeting is a work in progress, and you’ll come back to this stage later to make adjustments as you get more experience and learn what you need.
Sort your money into categories.
You’re ready to take the next step in expenditure tracking by classifying your spending now that you’ve completed your basic budget. This will offer you a much better picture of where your money is going each month, making it simpler to make budget adjustments as required.
In general, expenditures are divided into three categories: fixed expenses, variable expenses, and periodic expenses. Continue reading to discover more about these categories and how to classify your personal expenditures into them.
Expenses that are not variable
A fixed expenditure is any cost that does not change month to month. This includes your rent or mortgage, vehicle payment, health insurance, and student loan payments.
Fixed expenditures cannot usually be reduced to fit better into your budget, but you may be able to reduce the monthly cost of some of them by making significant efforts, such as refinancing. Unless your fixed costs are very high or you are in a strong financial position to do so, you should avoid going to such lengths to cut them. If this is something you’re thinking about, speak to a financial adviser to learn more about your choices and make sure it’s a smart long-term decision.
Expenses that change over time
Variable expenditures are those that vary or fluctuate from month to month yet still occur each month. For the most part, this will cover expenses such as utilities, food, vehicle petrol, monthly entertainment, and eating out.
Variable expenditures, including certain needs, are often the areas where you may make budget cutbacks and changes. Make it a point to cut down on non-essential expenses initially, such as dining out and personal expenditures. If you’re in a pinch, though, you may be able to cut your food bill by planning ahead and making smarter choices at the store, or you might be able to cut your utility bills by being more conscious of your energy, heat, and water use. Many gadgets in your house are likely idling and continuously sucking power, and they may simply be disconnected and replugged as required.
Expenses that occur on a regular basis
Periodic expenditures are those that don’t happen on a weekly or monthly basis and may be either fixed or variable in nature. Property taxes or an unpaid balance on your income taxes are predictable but recurring expenditures, while car maintenance or vet bills are unforeseeable but recurring charges.
Because of the erratic nature of these expenses, they may be significant. You’ll need to create a new category to your budget to put aside the funds needed to pay these costs so that they don’t disrupt your normal budget or deplete your savings.
Luxuries vs. Necessities
It’s also a good idea to divide your expenses into necessities and desires, in addition to the three major categories. We’ve previously discussed how you can usually reduce variable costs but not fixed expenses; nevertheless, not all variable expenses are pleasures, and not all fixed expenses are needs.
Your Netflix or Spotify subscriptions are likely fixed costs since they cost the same amount every month, while your home utilities are most likely variable expenses. Adding this extra categorization will aid you in identifying places where you may make improvements.
Incoming Expenses Should Be Monitored and Recorded
Make it a habit to write down each expenditure as it occurs and to evaluate them at the end of the day or week. You may keep track on your phone or in a notepad while out shopping, whatever is most convenient for you. Even if you are paying with a card and will already have a record of the transaction from your financial provider, you should take the time to document all of your transactions.
Manually recording your transactions ensures that every dollar you spend is properly accounted for and keeps you actively engaged in monitoring your expenditures, giving you a better grip on your finances and reducing your chances of overspending or making impulsive purchases. This is especially useful when buying online, since there may be a significant gap between the worth of your money and the act of completing a purchase on your phone or computer.
The Best Ways to Keep Track of Expenses
There is no one-size-fits-all solution for keeping and tracking your expenditures; you have a variety of options. What matters is that you figure out whatever method works best for you and stay with it.
Make use of an app
Apps are a fantastic choice for both novice and seasoned budgeters, since they provide a number of advantages that are not available with any other way of budgeting. Most applications, for example, enable you to budget from anywhere and automatically update to provide you with a consistent and up-to-date budgeting experience across your phone, computer, and tablet.
Many applications also automate a lot of the budgeting process by integrating your previous and current expenditures from your bank account, identifying odd transactions, and even sending you alerts when you’re about to go over your spending limitations. There are so many applications to select from that you’ll be able to discover one that meets your requirements and budgeting approach.
Here are a handful of our favorite picks:
Personal Capital is a term that refers to the
Personal Capital is a popular web-based software that automates the management of your expenditures and savings. You have the option of categorizing your expenditures by category, date, or merchant. You may also establish spending and saving goals and monitor your retirement funds to determine whether you’re on pace to retire by a certain date. The greatest part? It’s completely free.
Personal Capital also has an unique tool called a net worth tracker. Understanding how much you own vs how much you owe is a useful measure for determining your financial situation.
Money from the Tiller
To monitor your spending, transactions, and account balances, the Tiller Money app allows you to build customized spreadsheets that are automatically updated on a regular basis. To keep track of your spending, the app securely collects data from banks, credit cards, mortgages, brokerages, and a variety of other sources.
When you join up, you must connect all of your accounts, choose a platform (Microsoft Excel or Google Sheets), and choose a pre-built template for monitoring expenditure, analyzing patterns, budgeting, and more. Tiller Money is for you if you like spreadsheets.
It was one of the first big budgeting applications, and it remains one of the most popular and extensively used to this day. It is entirely free to use.
Mint.com connects to your accounts to monitor and classify your expenditure automatically. You can set up payment reminders for your normal expenditures on the app, and you can also sign up to get warnings if you go over budget. The software also identifies odd spending.
A Budget Is Required (YNAB)
YNAB is another famous budgeting software that provides a thorough and user-friendly budgeting approach. The business offers a variety of video lessons to assist you in getting the most out of the app and getting started with budgeting. One month is free, followed by a $7 monthly membership, totaling less than $100 per year. In the first two months, subscribers save an average of $600, and in the first year, they save $6000.
The digital counterpart of the cash-only budgeting technique is Mvelopes. Subscriptions range from $4 per month for a basic account to $19 per month for a premium account that includes a quarterly one-on-one session with a personal financial counselor. A monthly phone session with a personal financial coach is also available for an extra cost. The basic account comes with everything you need to get started, but if you’re having trouble, the additional assistance may be worth it.
PocketGuard is a budgeting software that helps you stay on track with your expenditures. It keeps track of your incoming and outgoing expenditures, as well as your savings contributions, by connecting to your accounts. It also monitors your regular bills to see if you can save money on the services you currently have, such as cable, internet, and phone.
Wally is one of the newest budgeting applications to gain momentum, and although it is still in beta, its fast increasing user base indicates that it is a viable competitor.
Unlike the majority of the applications we’ve suggested, Wally doesn’t monitor your spending automatically and instead asks users to manually enter each transaction in order to make them more conscious of their spending. It uses your phone’s GPS to identify where you spend the most money, which is a unique way of geo-tracking your expenditures.
Make an Excel Spreadsheet
One of the easiest methods to keep track of your budget and expenditures is to use a spreadsheet or ledger, which enables you to look back over a lengthy period of time at a glance. You may create pages for weeks, months, or years, and once you’ve entered all of your incoming and outgoing expenditures, you can balance your budget using the built-in spreadsheet capabilities. If you want something that is both free and simple to use, this is a fantastic choice.
a pen and some paper
Apps and spreadsheets are fantastic, but finding one you enjoy and feel comfortable with may take some time. If you want to keep track of your expenditures the old-fashioned way, you may do so using a pen and paper. This will also allow you to cut down on the amount of time you spend in front of a computer screen.
The main advantage is that it is a low-cost method to keep track of your expenditures. Because you will have to write down every single transaction, keeping track of your expenditures using pen and paper may provide a reality check for your budget. You’ll have greater confidence in making changes to your budget to make sure it’s on track to achieve your objectives.
Suggestions for Effective Expense Tracking
Remember that what is measured gets better, and your expenditure monitoring is no exception. Learning how to manage your money is critical to achieving your financial objectives.
Consistency is essential for forming any habit and for achieving financial success in any position. It’s no different when it comes to keeping track of your expenditures.
If you aren’t consistent and diligent in tracking where each dollar goes, you won’t be able to make a significant impact, and keeping track of your expenditures will become a futile exercise. As a result, with continuous work, you may drastically improve your financial situation and do things you never imagined possible on your present salary.
Setbacks should not derail your progress.
There will be months when you have unexpected expenditures that exceed your budget, as well as months when you overspend, but you can’t allow these events set you up for failure. Instead, look at them as learning opportunities that will help you make better financial choices in the future. More of your money should go into savings to meet future crises, and you should strive to reduce your unnecessary spending.
Examine and Modify Your Budget
While you’re getting into the habit of budgeting, you should evaluate and make changes to your budget at the end of each month. As you gain expertise, you may reduce this to once every few months, but you should continue to update your budget on a regular basis to ensure it meets your changing requirements and helps you achieve your objectives.
If you find yourself consistently running over budget in a crucial area, you may want to modify your budget to account for the difference. However, if you’re going over budget on things that aren’t necessities, you’ll need to find out how to save money. Be honest with yourself: there’s no sense in creating a strict budget that you won’t be able to keep to, and there’s also no point in creating a budget that you’ll forget about. Your objective should be to find a healthy middle in which to operate.
Remember that just because you’ve discovered the appropriate budget doesn’t imply you’ll always be able to stick to it. Even a comfortable budget requires some self-discipline, but it’s well worth the effort to attain financial independence.
One of the most essential weapons in your financial armory is effective expenditure monitoring. It may take some time, but it’s simple enough to do, and there are more resources than ever before to make it more efficient and painless.
Regardless of the technique you choose or the amount of time it takes, monitoring your expenditures is a worthwhile endeavor that will reward you tenfold by putting you in charge of your money and paving the path to your financial objectives.
The how to create a budget spreadsheet is a simple step by step guide that will help you track your expenses.
Frequently Asked Questions
How do you record expenses?
You can record expenses by using an expense journal. This is a notebook where you write down what you spend money on, when you spent it, and how much you spent.
What is the easiest way to keep track of income expenses?
The easiest way to keep track of your income and expenses is with a spreadsheet. You can use Microsoft Excel or Google Sheets to create one.
What is the 50 20 30 budget rule?
The 50 20 30 rule is a financial strategy used to calculate how much money you should spend on each purchase. Its based off of the idea that if you spend less than 50% of your budget on necessities, then you have enough left over to invest in luxuries.
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