We keep track of our expenses because things add up, sometimes in surprising ways. To make significant changes in your spending habits, you need to know your outflow or expenditure score. Record-keeping enables you to spot that all-important “big picture”: exactly how much you spend, and on what, as well as how it swings over time. If you can’t trace yo
ur expenses, making changes in your habits will be fairly jumbled. You might strike on something that will save you a lot of money, or you might not. You might cut down expenses a lot in one area, only to spend more in another area without realizing it. On the other hand, if you do know where your money goes, you can target those areas that need work the most, and you can make good decisions about how to spend your money. Often, your assumptions will be wrong.
Whether you earn much or just enough, the same principle applies. We frequently commit the error of considering each expense in isolation, deeming it worthy, and moving on… only to find that somehow there seem to be more worthy expenses than there’s money to pay for them. The technique is to look at the big picture and the real one…
How to track your expenses
Let’s fire up with the traditional method of record-keeping, and suppose that if you’re a computer geek, you’ll settle toward software later on. For the time being, keep it straightforward!
I suggest purchasing a small, cute or manly notebook. Why so? Because this is a constructive venture; strengthen it by using an nice-looking notebook, one that says “I’m doing a good thing for my life!” when you look at it.
For daily expenses, you can either write everything down in your notebook right away, in which case you need to carry your notebook with you, or you can save the receipts from your purchases and then use those receipts in the next step. But if you do the receipts-saving method, make sure you actually get a receipt for everything, and that you actually do save them.
Once you have gathered enough information to start looking at the big picture – and this could be after as little as a week or two, if you’re eager to get started – then start categorizing the expenses and adding up the totals. To do this, you’ll need not only your daily record of purchases, but also any credit card bills, utility bills, checkbook register and any other bills that you have paid.
Keep in mind, be honest, be detailed, and be prepared to be surprised.
Hidden Expenses
Jotting down even the little bitty expenses is significant, because if you’re not sure where your money is going, it’s often going to what I call hidden expenses: ones that are small enough that ignore them.
The hidden purchases usually fall into one of three types:
ur expenses, making changes in your habits will be fairly jumbled. You might strike on something that will save you a lot of money, or you might not. You might cut down expenses a lot in one area, only to spend more in another area without realizing it. On the other hand, if you do know where your money goes, you can target those areas that need work the most, and you can make good decisions about how to spend your money. Often, your assumptions will be wrong.Whether you earn much or just enough, the same principle applies. We frequently commit the error of considering each expense in isolation, deeming it worthy, and moving on… only to find that somehow there seem to be more worthy expenses than there’s money to pay for them. The technique is to look at the big picture and the real one…
How to track your expenses
Let’s fire up with the traditional method of record-keeping, and suppose that if you’re a computer geek, you’ll settle toward software later on. For the time being, keep it straightforward!
I suggest purchasing a small, cute or manly notebook. Why so? Because this is a constructive venture; strengthen it by using an nice-looking notebook, one that says “I’m doing a good thing for my life!” when you look at it.
For daily expenses, you can either write everything down in your notebook right away, in which case you need to carry your notebook with you, or you can save the receipts from your purchases and then use those receipts in the next step. But if you do the receipts-saving method, make sure you actually get a receipt for everything, and that you actually do save them.
Once you have gathered enough information to start looking at the big picture – and this could be after as little as a week or two, if you’re eager to get started – then start categorizing the expenses and adding up the totals. To do this, you’ll need not only your daily record of purchases, but also any credit card bills, utility bills, checkbook register and any other bills that you have paid.
Keep in mind, be honest, be detailed, and be prepared to be surprised.
Hidden Expenses
Jotting down even the little bitty expenses is significant, because if you’re not sure where your money is going, it’s often going to what I call hidden expenses: ones that are small enough that ignore them.
The hidden purchases usually fall into one of three types:
- impulse buys
- Low-cost purchases
- part of a routine or habit
Impulse buys often don’t get noticed because we don’t tend to plan for them: the CD on sale, the chocolate bar at the drug store. Even when they’re expensive, the fact that they seem spontaneous somehow tends to sabotage our rational spending: we justify the purchase as being exceptional. Even impulse buying often falls into some sort of pattern overall, though.
Low-cost items are another type of purchase that tends to fall under the radar. Something that only costs a dollar or two, like a cup of coffee or a little knick-knack, seem almost too small to be worth tracking. Except that little items add up to bigger totals. If you let a $1 purchase slip by every day without thinking about it, by the end of the year you would have let $365 drift away without knowing where it went. I bet you’d be interested in keeping track of the $365 if it were given to you all at once!
Purchases that are part of a routine are often the hardest to track, but in many ways the most important. These are purchases that we don’t even think about, but they can account for a lot of money: buying sodas from the soda machine at work, popcorn at the movie theater, coffee and a magazine on the way to work in the morning. Each purchase individually may not be expensive, but they add up, particularly since you may make these purchases frequently. The fortunate thing about this kind of spending is that it’s possible to change your routine slightly and eliminate a lot of these expenses: bringing a snack from home to work instead of plugging money into the vending machine, for instance.
In the long run
Once you’ve gotten a clear picture of your finances over the course of a year or so, you may or may not want to stick with the “record every penny” method, depending on your personal style, I still recommend that you keep a reasonably exhaustive record, so that you can keep track of changes in your spending… are expenses in one category starting to creep up again? Recordkeeping also ties in well with budgeting, so it’s a win-win situation to keep track of your expenses. Good record keeping is essential to your financial survival.
Low-cost items are another type of purchase that tends to fall under the radar. Something that only costs a dollar or two, like a cup of coffee or a little knick-knack, seem almost too small to be worth tracking. Except that little items add up to bigger totals. If you let a $1 purchase slip by every day without thinking about it, by the end of the year you would have let $365 drift away without knowing where it went. I bet you’d be interested in keeping track of the $365 if it were given to you all at once!
Purchases that are part of a routine are often the hardest to track, but in many ways the most important. These are purchases that we don’t even think about, but they can account for a lot of money: buying sodas from the soda machine at work, popcorn at the movie theater, coffee and a magazine on the way to work in the morning. Each purchase individually may not be expensive, but they add up, particularly since you may make these purchases frequently. The fortunate thing about this kind of spending is that it’s possible to change your routine slightly and eliminate a lot of these expenses: bringing a snack from home to work instead of plugging money into the vending machine, for instance.
In the long run
Once you’ve gotten a clear picture of your finances over the course of a year or so, you may or may not want to stick with the “record every penny” method, depending on your personal style, I still recommend that you keep a reasonably exhaustive record, so that you can keep track of changes in your spending… are expenses in one category starting to creep up again? Recordkeeping also ties in well with budgeting, so it’s a win-win situation to keep track of your expenses. Good record keeping is essential to your financial survival.
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